Airlines
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Airline Fiscal Analysis
Introduction
Todays airlines face many new problems. The historical tends show the true story of what is happening in the airline industry. Personal income, discount rates, increase in fuel rates, just to name a few, are taking their toll on the industry. The charts included take a more pictorial view of exactly what is happening and what things are changing. People are driving shorter distances and companies are using video conferencing and new technologies to avoid much of the business travel that has been a stable of the airline industry. This analysis will give a better overall view of these changes.
Personal Income – Historical trend
Define personal income, and how ones income can affect the historical trend in the airline industry. Personal income is defined by the United States Bureau of Economic Analysis as income received by persons from all sources. It includes income received from participation in production as well as from government and business transfer payments. It is the sum of compensation of employees (received), supplements to wages and salaries, proprietors income with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. (Wikipedia 2006)
A persons income can affect the airline industry and the trend that can show if the next year will be a slowdown in the industry or will the airline be on an upward slope. A CRS report stated that when there is an increase in energy prices, particularly with gasoline and heating oil this could negatively affect tourism. Other things being equal, the increase in energys percentage of total personal consumption expenditures from 5.3% in 2002 to 7.2% in the second quarter of 2006 means a shift in spending of $150 billion at an annual rate to energy. Consumers supply and demand tends to adjust when energy prices start to increase and therefore the airline industry has to adjust accordingly as well. The airline industry has to track what expenditures consumers are budgeting their personal income around, because this can affect the airlines profit if there is not enough passengers filling seats which can cause flights to be cancelled if consumers are driving vs. flying because they cannot afford an airline tickets.
Model Output for Transportation Revenue per Flight versus Vehicle Capacity
Energy Prices and Energy Expenditures
Year and Quarter
Consumer Price Indexes (1982-1984=100)
Spending on Energy % of Total Personal Cons Expenditures
All Energy
Gasoline
Piped Nat. Gas
Heating Oil
Spending/ All Energy
Spending/Gasoline
121.7
135.3
111.5
136.5
135.1
166.3
136.6
2004 – I
143.7
147.2
174.1
145.1
2004 – II
150.8
160.5
175.7
147.4
2004 – III
152.3
160.4
181.3
160.7
2004 – IV
158.4
170.1
188.6
187.4
2005 – I
159.8
169.9
192.5
186.2
2005 – II
167.9
182.2
198.3
199.9
2005 – III
187.6
216.6
211.5
234.3
2005 – IV
192.5
209.3
258.5
246.3
2006 – II
192.8
206.4
245.9
231.5
2006 – II
203.8
235.8
217.4
248.2
Bureau of Economic Analysis, National Income and Products Table, Underlying Detail
Tables, viewed August 10, 2006;
Discount Rates
Interest rate effect is the effect that a lower price level has on investment expenditures through the effect that a change in the price level has on interest rates. This is how the interest rate effect works; if there is a decrease in the price level, then there will be an increase in real cash on hand. The interest rate effect focuses on the effect that changes in real money balances have on interest rates.
Current status of Discount Rates
The discount carriers appear to be winning the battle for Americas skies. Southwest Airlines, JetBlue, Air Tran and other low-fare carriers are in the running to capture even more market share at the expense of troubled legacy carriers.
The U.S. is not the only one that is having the problem of the discounters giving the more established carriers a run for their money. Discounters are taking off in Mexico, India, China, Europe and points in between.
In the U.S., discount airlines have been flying rings around the major carriers for years, benefiting from management, lighter pension loads and the tendency of consumers to give up some of the perks and convenience for significantly lower fares. The discounters now control more than 25% of the U.S. airline business – airlines are likely to face a glut of seats in the future.
Gross Domestic Product (GDP) is the total amount of goods and services produced annually. When business is good then there are business meetings out of state. When there is a meeting that means that there has to be people there to attend and when there are meetings that have to be attended then there are planes that have to be used to transport the people to these meetings from out of state. Over the past 3 years there has been a steady increase in the GDP. There was a large jump from 03-04 from 4.7-6.9 with only and incremental drop from 6.9-6.3 from 04-05.
99.6
As you can see there has been a steady increase in travel up until September 11th 2001 after that you can see that there was a steady increase until present.