Airlines!!

An airline provides scheduled air transport services to passengers or freight or chartered flight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for reasons of mutual benefit.Airlines vary from those with a single airplane carrying mail or cargo, through full-service international airlines operating many hundreds of airplanes. Airline services can be categorized as being intercontinental, intracontinental, regional or domestic and may be operated as scheduled services or charters.The pattern of ownership has gone from government owned or supported to independent, for-profit public companies. This occurs as regulators permit greater freedom, in steps that are usually decades apart. This pattern has not been completed for all airlines in all regions. The demand for air travel services depends on: business needs for cargo shipments, business passenger demand, leisure passenger demand, all influenced by economic activity. The overall trend of demand has been consistently increasing. In the 1950's and 1960's, annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through the 1980's and 1990's. Growth rates are not consistent in all regions, but certainly areas where deregulation provided more competition and greater pricing freedom resulted in lower fares and sometimes dramatic spurts in traffic growth.

 

The U.S., Australia, Japan, Brazil, Mexico, and other markets exhibited this trend. The industry is cyclical. Four or five years of poor performance are followed by five or six years of gradually improving good performance. But profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. It is in this time that airlines begin paying for new generations of airplanes and other service upgrades they ordered to respond to the increased demand. Since 1980, the industry as a whole has not even earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse. Warren Buffett once said that despite all the money that has been invested in all airlines, the net profit is less than zero. He believes that it is one of the hardest business to manage. As in many mature industries, consolidation is a trend, as airlines form new business combinations, ranging from loose, limited bilateral partnerships to long-term, multi-faceted alliances of groups of companies, to equity arrangements between companies, to actual mergers or takeovers. Since governments often restrict ownership and merger between companies in different countries, most consolidation takes place within a country. In the U.S., over 200 airlines have been merged, taken over, or simply gone out of business since deregulation began in 1978. Many international airline managers are lobbying their governments to permit greater consolidation, in order to achieve higher economies of scale and greater efficiencies.