Global Aviation

As with all businesses, the airlines are no different in that they need to stay competitive or they risk going under.  With global business it is important to stay competitive against other countries and the airlines are currently facing threats from emerging foreign airlines.

Because the United States is and has always had one of the world’s strongest global economies, we are threatened by the increasing globalization of other nations. Naturally, this is affecting the airlines as well.  An example of foreign airline competition would be Etihad. Etihad is a rapidly growing airline out of the Persian Gulf that is taking full advantage of the "open skies" agreement made by the United States many years ago. The "open skies" agreement is an international policy that promotes liberalization among international air travel. Therefore, allowing commercial airlines and cargo to travel freely between the United States and those countries that are partnered with the United States in this agreement increases globalization between countries. But now that Etihad is proving to be rather successful and is growing so rapidly that it has multiplied its daily flights to the U.S. by six in the last six years, the United States airlines are being threatened (Mouawad, 2015).

The major three United States airlines have recently released evidence that the three major Persian Gulf airlines have received $42 Billion in the past decade in subsidies from the U.S. government (Carey, 2015). This would allow these foreign airlines to expand their businesses globally and at a faster rate than they would without the funding. 

Fuel is the leading industry expense in the airlines. Fuel costs the airlines more than labor costs. This means that in order to continue to be a sustainable industry, the airlines will have to reconfigure labor negotiations. Paying employee's less will likely decrease productivity.  The airline industry is already in a shortage of not only pilots but mechanics too and many people consider this an effect of low wages.

The airlines ticket prices are the highest they have ever been at the same time they are making record profits and oil prices are the lowest they have been in years.  American Airlines CEO Doug Parker stated that they would basically act as though the fuels prices had never dropped and continue operating as they were before the oil prices fell, rather than pay their employees more or lowering ticket prices (Frank, 2015).

As globalization increases with other countries, U.S. airlines will be faced to adapt and compete with emerging foreign airlines in order to survive.  As with any business it is important to stay ahead of the game and it will be interesting to see how domestic airlines adapt and move forward from here.

References

 Airline industry overview. (n.d.). Retrieved March 13, 2015, from http://web.mit.edu/airlines/analysis/analysis_airline_industry.html

Carey, S. (2015, March 05). U.S. Airlines Detail Claims of Subsidies to Persian Gulf Rivals. Retrieved March 14, 2015, from http://www.wsj.com/articles/u-s-airlines-detail-claims-of-subsidies-to-persian-gulf-rivals-1425570104

Frank, T. (2015, January 27). Airline profit soar yet no relief for passengers. Retrieved March 12, 2015, from http%3A%2F%2Fwww.usatoday.com%2Fstory%2Fnews%2F2015%2F01%2F27%2Fairline-profits-soar-passengers-fuel%2F22395509%2F

Mouawad, J. (2015, March 02). Etihad Airways’ Rapid Growth Frustrates Rivals. Retrieved March 11, 20, from http://www.nytimes.com/2015/03/03/business/etihad-airways-rapid-growth-frustrates-rivals.html