Expenses and Costs Facing Todays Air Industry

The past decade proved a tumultuous one for the global airline industry. However, the last three years have offered companies in the sector some relief. Lower than expected oil prices, stable international economic growth, increasing consumer demand, and political goodwill from various leaders continue to result in favorable outlooks into the future. As Karp (2017) provides, consumers are exhibiting high confident levels relative to air travel which serves to allow affiliated organizations to consider developments in tandem with passenger expectations. This has resulted in unprecedented increases in costs and expenses in the current air industry leading to lower profits and dwindling interest from investors.

Operating expenses stem from different avenues and are further subdivided into indirect and direct costs (Heshmati & Kim, 2016). Another direct cost worth considering is associated with aircraft overhaul, maintenance, and depreciation costs. These are quite significant especially in instances where recently purchased aircraft are found to be harboring significant operational defects. This often leads to aircrafts which are high value assets being grounded by federal and international agencies citing safety precautions.

One of the greatest fears among investors revolves about the issue of non-fuel costs. Flight attendants and pilots continue to demand novel contracts with better terms services (Karp, 2017). This is an attribute that senior managements cannot counter given that there is the need to retain high value staff who could be otherwise taken up by competitors if they fail to appease such interests. Legacy airlines are thus accruing significantly high costs with this regard making it difficult to appraise cost expenditure structures.

Fuel expenditures remain relatively stable while passenger revenues are upward bound due to higher ticket prices. Other than the increasing labor costs, industry players have to also contend with major renovations occurring in different airports all over the globe (Stalnaker, Usman, & Taylor, 2017). These extremely large projects are essentially civic investments that ultimately translate into greater costs for airlines and by extension, the passengers. Broader inflation is therefore making it overly challenging for companies to make headway from improved revenues. Similarly, the industry players have to contend with cut throat competition; not only among national carriers but also from international entities. Marketing strategies have also become as source of greater expenses as firms aim at ensuring product differentiation that attracts desirable clientele.

Every airline tends to experiences discrete sets of business challenges and risks while the operating environment continues to undergo transformations due to evolving economic attributes, state funded carriers, new entrants as well as shifting consumer preferences (Deloitte, 2015). The most delicate issue that has seen expenditures pushed upwards appertains to overall airline security aspects. Industry players are investing heavily in technology as well as staff training to ensure organizational capacity is promptly responsive in the case of any eventualities. Executives are aware of the damage potential security and hacking incidences bear on normal operations.

In conclusion, costs continue to outweigh revenues making it difficult for airlines to attract investments as desired. Lower fuel expenditures have not translated to financial reprieve given that there are increases relative to labor, marketing strategies, civic projects, as well as risk management initiatives. The most critical elements in this industry appertain to assuring passenger safety. Expenses associated with improving responsiveness to any occurring threats as well as ensuing that the best pilots and flight attendants will continue to increase in future relative to industry dynamics.

References

Deloitte. (2015). Managing strategic risk in aviation. Deloitte Development LLC. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/consumer-business/avitran-disrupt-aviation-pov.pdf

Heshmati, A., & Kim, J. (2016). A Review of the Airline Industry. In Efficiency and Competitiveness of International Airlines (pp. 51-73). Springer Singapore.

Karp, A. (2017). Analysis: Fuel and labor costs are rising, but airlines are maintaining financial health. Air Transport World. Retrieved from http://atwonline.com/opinions/analysis-fuel-and-labor-costs-are-rising-airlines-are-maintaining-financial-health

Stalnaker, T., Usman, K. &. Taylor, A. (2017).airline economic analysis 2016-2017 Edition. Oliver Wyman. Retrieved from http://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2017/jan/aea/NEW_NYC-MKT59202-002_AirlineEconomicAnalysis_2016-17_web.pdf