Airline IndustryEssay Preview: Airline IndustryReport this essayAirline IndustryEconomics is explained as the social science that studies the production, distribution and consumption of goods and services. As a guideline for economics, the used of economic indicators are used as a means of predicting or making a forecast about the economy and the different factors that affect those forecast. In this paper, Team A will study the Airline industry how each of the factors of Retail Sales, unemployment rate, Gross Domestic Product (GPD), interest rates and Producer Price Index (PPI) affects the industry on the domestic and international scale. Over the past few years this industry has been significantly affected by such events as the September 11, 2002 terrorist bombing, the high and escalating prices of fuel and recently the shortage that was caused by Hurricane Katrina in August of 2005. Each of these events were world shaking events and in relations to the micro and macro economics presented a ripple effect that to this day is still being felt. The Airline industry, which operated worldwide,
was hit with massive events that affected all economic indicators and almost destroyed the businesses. In the beginning years of economic studies, it was previously thought that economic problems were only caused by non-economic events that only affected the things in that arena. However, with the introduction of Keynesian economic theory, of “everything at once”, economist and society began to view that with one change, all things were affected. All businesses began seeing that the market held a variety of interest and the interest in one could drastically affect the interest of another. The government and its economic policies also contributed to how the airlines business either improved or fell. Teams As analysis of these factors will attempt to show all these factors and how the future of this industry can be predicted from the factors.
Industry OverviewIn North America alone there are approximately 209 airlines. The airline industry began as a mail transportation system that would later become a mean for many other things. In time, airplanes were used to transport our military troops, as well as farmers would use them to protect their crops. Airplanes were also used to transport cargo all over the world, which leads to many company such as UPS, FedEx, and even to transport passengers all over the world faster.
Retail SalesRetail sales are an important economic indicator because consumer spending drives much of our economy. Retail sales account for half of the overall consumer spending which accounts for about two-thirds of final demand in the economy. For example, retail sales of airline tickets have been slow in the previous year. However, in 2006 they went up 7.5% in the third quarter, this being the biggest increase for that period since 2000 (Desert news, 2007). With the rise of fuel prices, airline ticket prices will only continue to go up.
Interest RateInterest rates have a large impact on the current state of the economy. Therise or fall in interest rates dictates how much money is borrowed, which has a direct impact on economic growth. Rising trends in short-term interest rates have consistently been accompanied by rising trends in the stock market, and vice versa. The Fed controls short-term interest rates in the United States. The chart below shows how the Feds monetary policy has been and continues to be, strongly influenced by what is happening in the stock market. “Specifically, the chart implies that the Fed can be relied upon to cut interest rates in response to persistent stock market weakness and to hike interest rates in response to persistent stock market strength (Safe Haven, 2007)”
There are many variables that can influence the rates on long-term debt, but an understanding of key economic indicators can provide clues to the future direction of interest rates. When interest rates are high, people tend to spend less money and do all that they can to stay away from borrowing money, and putting themselves in debt, which then slows down the movement of money in the economy. One strategy the government employs is to lower down the interest rates, to attract people to borrow money and spend it. When the economy is in danger of rising inflation, the government increases interest rates to make access to excess money more expensive and arrest spending. Interest rates became a tool to influence the economy. “Inflation, supply and demand for money and other general economic indicators are normally related to one another, which in turn dictates which interest rate to peg” (Russell, 2006).
”-„A number of economists have tried to explain why this phenomenon is occurring. One argument is that the average U.S. consumer does not buy much of anything at any time, leading to inflation. A second argument is that people will be more inclined than ever to spend more and spend more, which increases the risk of falling into the trap of becoming dependent on these external shocks. They want to be able to earn more now that they are under economic stress and, consequently, can afford to leave the country when needed. One possibility is that government-imposed high interest rates increase an interest-rate risk on people who cannot afford to leave the country because they don’t have time for it. In contrast, another option is that people in debt and their ability to make income are already in danger. Thus, government policies in place to prevent, restrict, or restrain debt in the banking system are necessary to help a person who will not have access to a loan. To deal with the rising debt, there are some alternative approaches. One alternative is to have the central bank increase the rate in line with the market while lowering the interest rates or by purchasing the government-issued bonds. An alternative to such a policy would be to increase the cost of borrowing funds while lowering the rates to match those of existing government bonds that are purchased for public use. This would create savings in a system that would be more efficient if it worked. But the government would also be forced out of the market altogether in ways that are not economically sensible. In the banking industry, these efforts to make it easier to do business, to reduce the risk of falling out, and to prevent people from borrowing money will produce negative effects. The use of government bonds to buy bonds has been a popular practice in the United States for some time. It has been popular in other countries for as long as other kinds of private businesses have been operating. There is even debate over what the use of bonds should be. One issue is whether the government should be able to buy any kind of bond at all, i.e., any kind that is equivalent to a mortgage at market prices. Another consideration is whether the government should allow anyone to buy the bonds at market prices, and would otherwise be forced to reduce their level of risk. This is not so. The use of government bonds would be better served by allowing people to buy securities and other securities at market prices. This way, the government would not be forced out of the market, as a necessary evil. The issue and question are, how to balance these competing interests, rather than which policy is actually good for society, and then who gets to bail out the banks. While there are many ways to avoid borrowing money, all may be better for society. ⁷Government is an option because it permits the accumulation of income without reducing the cost of getting it, but does not allow people to buy bonds at much lower rates if they have access to government funds. Also, since government funds are used in the service of other goals, such as protecting people from unemployment, the need for government bonds would likely decrease if all the people were forced into the financial sector voluntarily and all the other problems would be resolved by the end of the year. A third option might be to reduce the total levels of government control over individual banks. To create jobs, banks would be obliged to reduce or abolish some forms of borrowing, and this would also increase credit. The money banks already own would then be used to build new private banking units, the sort of ones that serve as “solar power” for government. By doing this, the federal government could raise the rates of credit
Forecast:Jan 2007 8.25Feb 2007 8.25Mar 2007 8.25Apr 2007 8.25May 2007 8.25Jun 2007 8.25Jul 2007 8.25Aug 2007 8.25Sep 2007 8.25Oct 2007 8.00Nov 2007 8.00Dec 2007 8.00Jan 2008 8.00Feb 2008 8.00Mar 2008 8.00Apr 2008 8.00May 2008 8.00Jun 2008 8.00Jul 2008 8.00(Mortgage-XFebruary 2007)Forecast Value