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Budgeting: A Focus on the Airline Industry - Research Paper Example

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 This paper attempts to analyze the impact of oil price fluctuations in the airline industry, as well as point out possible ways that decisions makers can use to deal with deviations in the budget due to oil price shocks. This paper identifies the major issues in budgeting…
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Budgeting: A Focus on the Airline Industry
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Budgeting: A Focus on the Airline Industry

Download file to see previous pages... Such fluctuations in crude oil have caused macroeconomic distortions, especially in the oil-importing countries. The every-day rising of the fuel prices has brought about both negative and positive impact to the airline industry in the USA. The US Airways incurred a loss that was never expected. American West earnings dropped compared with the previous year; while on the other hand, American Airlines recorded a higher profit compared to the previous year, courtesy of increased fares and higher demand at the same oil prices. Airlines have been keen not to raise their fares due to increase in fuel prices, but they cannot do this for long. In some parts of the country, jet fuel prices rose up to about 18% from the second quarter, and 45% from the early-year period. Therefore, the impact of this is felt now more than ever. From the above, it can be understood that the high jet fuel prices will constantly affect revenue, expenditure (also the fiscal position of the government) and cause inflation.  Budgeting and its major issues Budgeting are the process of financial planning that sets forth the resources to meet a set of goals for a certain period of time. It is an essential element of financial planning, control and evaluation processes of an organization. Donald (1995) argues that every company should always prepare a comprehensive budget that records staffing, operations, and realistic goals for programs in monetary terms. It is also thought of as an action plan, which helps an organization allocate resources, evaluate performance and formulate a future plan in line with the available monetary resources. Functions of budgeting One major function of budgeting is facilitating financial control. Schick (1996) puts it as a control over the inputs of budgeting to make sure that they are certain, accurate, valid, appropriate, legal and honest at the same time. He adds that inputs, which include the amount of money to be spent, are the central point that decision makers base their information on. The second objective is to allow smooth running of managerial activities. Administrators use available information or results, costs, as well as daily operations, to evaluate how well the programs are working.  ...Download file to see next pagesRead More
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