Airline Predictions for the Airline

Airline

Predictions for the Airline Industry

Capacity Utilization

Tippie School of Management Report, regarding the United States airline industry in April of 2005, the airline industry's 2004 decrease in capacity utilization, "measured in available seat-miles" improved during that year, increasing 7.2% to $833 billion after capacity utilization had plummeted 5.8% and 4.8% in 2002 and 2003. (p.5) This slightly increased capacity utilization was due to the increase in the passenger load factor and the percentage of used plane capacity in most airlines. Compared to historical data, the capacity utilization numbers were very high, as also noted by the U.S. Department of Transportation in its report on the industry. But the high capacity utilization by most major U.S. airlines was achieved at the expense of higher profitability. If the fares paid are lower, which they were during this period, capacity utilization may increase, but the industry as a whole is not necessarily thriving, thus while the 18-month forecast in this arena of capacity utilization may be strong, this does not mean the industry is in a state of recovery.

Federal Reserve Actions

The Federal Reserve has attempted to raise the rate of interest paid to consumers, to ensure that the economy does not become over-stimulated and consumers have an incentive to save. This comes after a period of lowering the interest rates to curtail the post-2001 recession that was particularly detrimental to the economic performance of the airline industry. The rate of interest affects consumer's disposable income, and as consumers find it more expensive to borrow money, they are less likely to have disposable income to expend upon leisure-based trips, thus meaning discount rather than full-price fares further cut into industry profits. The price of air travel, as noted by the U.S. Board of Transportation, has continued to decline for consumers, while the price of fuel and other inputs into the transportation industry has increased for the industry, meaning that the Federal Reserve actions, if interest rates continue to increase, will not help the airline industry.