Airline Industry and the Economy Essay Example | Topics and Well Written Essays - 2250 words

Airline Industry and the Economy - Essay Example The shape of the economy is determined by its fiscal and monetary policies, market regulations, capital and export markets, degree of stability and competition, factor endowment and social ahead capital. Fiscal and monetary policies involve government expenditures, money supply, interest rates, currency exchange and inflation rates, and the operation of the banking system. The objectives of fiscal and monetary measures are to keep government from deficit spending and provide stability in money supply, interest rates, prices and the banking system. Once these conditions are emplaced and government spends within limits to avoid heavy external debt, capital credit is available for industries, purchasing power is strong and the economy produces a wide range of goods for the export market. As for market regulation, some of its cornerstones are the efforts to maintain a healthy balance between competition and cooperation and to discourage monopoly and oligopoly. The reason is that where co mpetition is completely unregulated and trade monopolies or oligopolies are allowed to operate, the large enterprises are likely to devour the smaller ones. Factor endowment relates to the supply of land and capital and the size and health of the workforce, while social ahead capital has to do with the availability and quality of power, water, communication systems, housing and transportation. The economy will have difficulty taking off if land and capital are hard to come by and labor supply could not meet the demand of industries in terms of skilled and able-bodied workforce. The economic engine will likewise sputter if water and power supply is unreliable, housing is scarce and expensive, and communication and transportation systems are inefficient. In the transport sector, the airline industry is the most sensitive to economic ups-and-downs and the most vulnerable to natural and man-made disasters, terrorist acts, wars and extreme weather events. This was once again demonstrated in 2001 when air travel worldwide grounded to a halt in the aftermath of 9/11. Flag carriers Swissair of Switzerland and Sabena of Brazil folded up, while several US airlines placed themselves in bankruptcy proceedings to avoid complete collapse. From 2001 until 2005, the airline industry worldwide suffered losses reaching $43 billion, which was equivalent to the combined capitalization of 13 US airlines in today's terms. Even British Airways, the world's biggest international airline, was unable to pay shareholder dividends for four years, had to trim 5,800 jobs and to introduce pay cuts to managers. In the US, the government came to the rescue of the distressed airline industry by allotting a $15-billion bailout fund. The industry used the assistance to hire back some 10,000 workers that were laid off at the height of the crisis, which was the primary concern of the state. In the absence of such economic upheavals, the main concerns of the airline industry are the costs of aircraft acquisition and maintenance, fuel and salaries. These are the direct operating costs of airlines,