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Opportunities and Threats facing the U.S Airline Industry Essay

Project id 1012690
Subject area Arts Entertainment
Document type Essay
Words 2943
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Opportunities and Threats facing the U.S Airline Industry The health of the overall U.S airline sector is still tenuous in-spite of their passenger traffic volumes returning to pre-9/11 levels. A poll estimated that by 2001 through 2003, the US airline industry reported to have dropped $23.2 billion dollars, compounded by an extra $1.6 billion from the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned within the whole six-year period 1995-2000 Drastic changes in the Economic, Political/legal and technological segment of airline's external surroundings contributed to a few of the major looses seen by the industry. The crucial factors that greatly contributed into the sheds include • Economic slow down in the nation • Enormous reduction in business travel • SARS outbreak • Increase in rivalry • Availability of replacements for aviation • soaring gas costs • Weak buck In response to the industry's financial crisis, Congress made accessible several kinds of relief which equates to over $20billion. This relief includes the payment of upto $5billion in pretax cash assistance to repay atmosphere careers for losses incurred as a direct result of the 4-day authorities shut-down of air traffic following 9/11. But, relief measures weren't enough to bring the airline industry out of hot water. Most of the airlines have accumulated vast amounts of debt which caused them to the point of bankruptcy. The list includes Atlas/Polar Cargo, Midway, National, Sun Country, TWA, United and US Airways. American and Delta airlines narrowly averted bankruptcy but have warned about such potential. " An average carrier is currently well over 90% leveraged (net debt to equity ratio) compared to 60-70 percent historically. This means most airlines are now completely leveraged and unable to receive capital. This has added to significant debt service expenses and will make the industry even more vulnerable to any future economic downturns. With industry debt well over $100 billion, much of this due in the next 24 month. 11 of 12 airlines are rated "junk bonds" by S&P. Only Southwest remains at an "investment grade. Almost all airlines are confronted with the same challenges and threats in the external environment like rising gas price, weak travel demand etc.. Some airlines such as Southwest, JetBlue and AirTran whi...

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