WHY AIRLINES ARE VULNERABLE TO DECLINES
The airline industry has always been a favorite of of bankruptcies, although several managed to recover by merging with other carriers. Despite this, there is a undeniably long list of unlucky airlines, which is ironic, considering the nature of service it provides and the weight of its global contribution. Why does this sector always finds itself in the midst of a struggle due to losses? Here are four reasons:
Continuous operations despite unprofitability
An industry known for its constant problems with regards to profit will soon have to resort to consolidation in order to save the business. How ever, for the airlines, the same principles do not apply as many declining carriers still fly despite longstanding conflicts as major shareholders cannot afford a shutdown. This would mean a loss of thousands of jobs, societal inconvenience, and a dent in creditors. Worse, if it happens to be a national carrier, it could be a blow to a country's pride.
Because of this, governments tend to cas a financial lifeline, but this will not prevent the company from cutting prices to fill excess capacity, affecting more stable players in the field during the process.
Pile of fixed costs
Aircraft construction generally requires expensive pieces of material, thus airlines will have to continue making loans despite their state. Aside from this, the sector needs large labor forces, making payroll expenses another regular cost, on top of the constantly fluctuating oil prices and security spending.
Political and social events
Exogenous occurrences such as disasters, terrorism, and turmoil in politics can highly affect the industry in terms of demand and operations. For instance, US carriers saw a $7.7B plunge despite federal aids after passenger count took a dive in the wake of the 9/11 attacks.
An airline’s image is molded by feedbacks from customers about their services. Inconveniences such as long lines and poor facilities converted to complaints will make it difficult for them to charge higher prices that are necessary to turn in profit. This is especially relevant given the rise of social media today, wherein people's flying experiences can easily be shared and spread.
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