A Critical Evaluation of the Aviation Industry in Relation to Current Global Issues - Term Paper Example

A CRITICAL EVALUATION OF THE AVIATION INDUSTRY IN RELATION TO CURRENT GLOBAL ISSUES Name University Course Tutor Date Table of Contents A Critical Evaluation Of The Aviation Industry In Relation To Current Global Issues 2 Introduction 2 State of the Industry 3 Overview 3 Current State of Safety and Security 5 Current Principal Threat 6 Current Positive Factors of the Aviation Sector 7 Aviation War 8 Global Issues Affecting the Aviation Industry 9 Challenges of the 21st Century 9 Competition and Pressures 10 Air Traffic Rights 11 Human Factors 12 Environmental Issues 13 Conclusion 14 Bibliography 15 A Critical Evaluation Of The Aviation Industry In Relation To Current Global Issues Introduction Scores of global issues are responsible for the current state of the world’s aviation industry. Ideally, the rate of development of the aviation industry is an index of such factors as security issues, safety threats, air safety organizations, human factors, global challenges, among other factors impacting the industry. While some global issues enhance the prosperity of the industry, a number of factors pose an immense deal of challenge to various air flight companies in the globe. Consequently, analysts in the industry have made attempts to establish the relationship between the contemporary state of the sector and the existing, global issues. The state of the industry is a factual representation of the current position of the aviation sector, obtained from an average of the performance of various airline companies (Wensveen, 2011, p.25). The indicators of the current situation of the industry include revenue, economic activity, employment opportunities, losses, and profits. A critical analysis of the industry reveals that current global issues contribute to the respective trends of the industry indicators. For instance, failures in the sector are likely to be as a result of such threats as fuel crisis. In contrast, such merits as containment of the global financial crisis, constant recovery of the global economy, and recovery of the aviation sector have positive results. State of the Industry Overview The global, aviation sector is in a slow recovery phase after years of inconsistency which saw the industry make billions of loss in over half of the past twelve years. For instance, in most recent cases, statistics indicate that European airlines made a loss of approximately $ 1billion in the just concluded 2012. The face of the industry, however, represents a significant player in the world’s economy proven by the economic contributions recorded in the last decade (Wensveen, 2011, p.26). For example, since the year 2001, the industry recorded revenue of $5.5 trillion, with the 2010 economic activity hitting a figure of $2.2 trillion. Over the same, the global industry has lost a total of $26 billion as a result of various challenges. Among the indicators of the state of the sector is a significant deal of employment; a case study of the year 2012 indicates that the industry employed 56.7 million people internationally. The air travel industry, in the year 2011, transported cargo of 48 million tonnes whose worth was $5.3 trillion. This was equivalent to more than a third of the global trade in that year. The expected profit increase between the years 2012 and 2013 is a significant illustration that the aviation sector is in a phase of slow recovery. The aviation sector currently exhibits more safety than ever hence winning the confidence of masses of people across the world. This has the implication that the planet earth exhibits the highest level of connectivity in history. Statistics show that over 3 billion people travel each year on more than 35,000 routes that link at least 3,800 airports. For example, in the year 2011, 2.8 billion travellers flew an aggregated distance of 5.1 trillion kilometres, which represents 34,000, times the length of distance between the earth and the sun. The industry of aviation has, therefore, emerged to be a significant force towards the enhancement of human life in the globe, with almost unlimited potential (Wensveen, 2011, p.28). It is, however, worth noting that the profitability of the sector has been balancing on the edge of a knife for quite some time. For instance, in cases where the industry experiences a revenue drop, by a margin of 1%, the profits ends up being a loss of the same value. The aviation sector also experiences significant challenges in efforts consistently deliver value. For example, the estimated cost for the trip from Beijing to New York, 22,000 kilometres is $1,500; this represents a cost of seven cents for each kilometre. On another hand, there is an estimation of a $1.25 per km for a taxi ride in New York; this translates to 31 cents for a ride consisting of four passengers. However, various airlines in the globe have exhibited substantial efforts in attempts to alleviate this situation, via improvements in competitiveness. For example, the last decade has witnessed a 9.2% increase of load factors and an increase in fuel efficiency of 24%. The shape of the global, aviation sector most benefits the customers (Shaw, 2011, p.78). Customers have a ready access to flying to a level that has never been witnessed in the history of the world. For instance, there is expected to be an increase of 1.5 billion flight passengers and an increase of over 20 million tons of cargo in the year 2013 as compared to the year 2001. In the provision of such a level of mobility, some airlines are in the process of making significant gains while others are making losses. Indeed, some airlines have collapsed with Span air and Malev being best examples of the year 2012. Current State of Safety and Security Air travel has occupied the position of the safest mode of travel. This draws substantial illustration from the low rates of accidents witnessed in the industry. For instance, in the year 2011, statistics showed that the industry recorded a rate of one accident per 2.7 million travels. This represented an improvement of 61% compared to the rate of accidents in the year 2001. In the year 2011, the IATA Operational Safety Audit, whose membership consists of 369 airlines, reported that its members had a performance, 52% better than airlines, not under IOSA. This audit serves under global standards and industry practices, whose setting is the responsibility of governments under the umbrella of the International Civil Aviation Organization (Kölle, Markarian, & Tarter, 2011, p.81). With respect to security in the industry, there has been a considerable improvement over the years proven by the availability of airport checkpoints driven data and risk awareness. Airport security threats are almost forgotten stories as a result of a match between passenger information and modern technology. The containment of the issue of security in the aviation sector has also received a significant boost from governments across the world. For instance, the global, aviation sector works in collaboration with the European Commission, Interpol, the United States DHS, and a number of other governments to counter security threats in the aviation industry (Kölle, Markarian, & Tarter, 2011, p.82). There are also efforts in attempts to secure cargo travel; IATA bases these efforts on identification of supply chain members, including the shipper. This security system has successfully gone through the testing phase and is already in implementation in Malaysia. Others countries, reportedly following suit, are United Arab Emirates, Mexico, Chile, and Kenya. There is also an accord between the United States and the EU regarding the recognition of the security regimes of each other. A combination of these efforts and efforts from the global, aviation sector will significantly enhance the security effectiveness in cargo markets. Current Principal Threat A key constituent of the current state of the aviation sector is the primary threat facing the industry as from the year 2012, to date. According to the International Air Transport Association, IATA, high fuel prices are the chief threat facing aviation sector in a global scale. This was the chief reason for IATA’s prediction of a profit of $3 billion for the year 2012. This would represent $500 million less than the initial prediction, and would primarily be as a result of an increase of the average price of a fuel barrel; to a figure of $115 (Kaps, Hamilton, & Bliss, 2012, p.117). Notably, IATA had an initial forecast of $99 per barrel of fuel hence an increase of $16. The price could have gone much higher were it not several issues that alleviated the situation. For instance, the critical situation of crisis in the Eurozone received containment alongside the improvement of the US economy. The global cargo market stabilized significantly and the fuel price expansion recorded a lower rate than expected. It is, however, worth noting that the current situation of the aviation sector is characteristic of a 34% cost of operations as a result of fuel prices; this is significantly high. Current Positive Factors of the Aviation Sector The state of the aviation sector is also characteristic of a number of positive factors, which function to, counter balance the prevailing challenges. For instance, there has been a significant control on the European financial crisis, towards the end of the year 2002. Several European nations have averted the on-going Eurozone crisis a move which could alleviate the worsening situation of passenger and cargo business. This could result to a reduction in air travel taxation and EU ETS costs (Kaps, Hamilton, & Bliss, 2012, p.118). The current state of the aviation sector also receives a significant boost from the steady recovery of the global economy after approximately three years of recession in several countries. The second half of the year 2012 also witnessed a slow recovery of the aviation sector, alongside an improvement of the freight market. The global freight market exhibited an improvement in the last days of the year 2012; in November, the global passenger demand was 4.6% higher than the previous year and 2.7% higher than the previous month. The FTK levels improved partially because of a change in the behaviour of consumers and increased confidence in the US among passengers. Statistics also indicate that the level of international passengers, in November 2012, was 5.6% higher than the previous year. Notably, the new airlines have higher rates of passenger travel growth than the existing ones. IN examples per regions, international passenger flights recorded a growth of 11% in Latin America, where else, the same recorded a growth of 10.5% in Middle East. The least growth rate of passenger international flights was among airlines in the United States (IATA, 2012, par6). With respect to domestic passenger travels, there has been a general increase among all airlines with exclusion of airlines based in India. Figure1: International Passenger Growth between October 2012 and November, 2012 (IATA, 2012, par9). The positive factor of the current state of the aviation sector is airlines’ ability to cut down their operational costs and match their capacity with the prevailing demand of freight services; the result is an increased load factor. Aviation War The state of the aviation sector is also characteristic of the question on whether global aviation is at war with respect to compliance to EU’s Emissions Trading Scheme. There is increased tension over the situation exploding to a trade war. The EU seems not to relent in the implementation of ETS despite opposition from 24 European countries. Indeed, some key stakeholders in the aviation industry are claiming that the environmental mission could have the translation of an international trade war. This draws illustration from the fact that a total of 140 non-EU countries has issued threats of economic retaliation as a result of forceful carbon pricing by Europe. The countries have argued that the operators in the aviation sensitive have taken adequate measures towards the conservation of the environment (Kölle, Markarian, & Tarter, 2011, p.100). Global Issues Affecting the Aviation Industry The current issues affecting the globe significantly impact the aviation sector hence holding responsibility for either the industry’s success or down gradation. These issues fall under various categories with the key ones being infrastructure, human factors, the environment, organizations, technology, and challenges faced in the 21st century. Challenges of the 21st Century Current changes in the regulatory environment, economic environment, and geopolitical environment have presented the aviation industry with a significant deal of challenges in the 21st century. These challenges correlate to the fact the industry is experiencing significant changes, in a time when the globe faces extended financial and physical constraints. There exists intense competition and severe recession of several economies. In the 21st century, scores of airlines are still suffering from the problem of poor infrastructure and a significant rise on environmental demands. Some airlines also operate from countries characterized by unfavourable political and social groupings, hence a significant bar to positive progress. The aviation sector is also facing a cross-road in the form of contradicting regulatory regimes. The first regime concerns transport laws whose objective is the governance of orderliness and safety in the aviation travel system. The second regime concerns competition regulations developed by some governments to contain unfair competition, protect the environment, and protect consumers (Kaps, Hamilton, & Bliss, 2012, p.120). Competition and Pressures Competition is a key global issue affecting the aviation industry in the 21st century. In particular, there is pressure concerning the costs of a flight as individuals tend to compare it with other means of transport. In a global scale, airlines face stiff competition from ground transport means which offer relatively cheaper prices than the aviation industry. The key competitors to global airlines include rail operators, bus operators, and sea cruisers. Consequently, there has been increasing pressure from consumers, on the aviation industry, to cut down its transportation costs; this move has, however, the potential of resulting to immense losses because of the associated operational costs. A number of factors are responsible for the high operational costs in the aviation sector. One of these factors is jet fuels, which account for, over 30% of operational costs of various airlines. For instance, jet fuel is responsible for 30% of operational costs of American Airlines translating to high transportation costs. The expenditures on jet fuel, on the other hand, draw influence from fuel efficiency and an airline’s flights in a given period. Notably, the expenditures on fuel have been on a steady increase despite the improvement of fuel efficiency (IATA, 2007, par5). The recommendations for alleviating the situation of increased expenditures on jet fuel include the deployment of planes which are highly fuel-efficient. In addition, airlines should raise flight load factors; this has the implication that the loads are as close as possible to the capacity of the plane. Thirdly, airlines should ensure that they increase operational efficiencies in all their flights. The achievement of this measure is subject to such changes as changes of routes, idling time, and speed. High operational costs in the aviation sector are also as a result of charges for airport services. In several regions of the world, these charges have the objective of catering for emergency services, security services, management of quality service, and Aerodrome safety. Landing charges also accompany the airport services fees hence another contributing factor to the high costs of air transportation. In addition, there other government charges such as taxation on revenues, taxation on jet prices, and taxation on aircrafts; these charges significantly increase the expenses associated with the industry (Thomas, 2011, p.40). The recommendations for the control of these costs include the increased credibility of the Airports & Government Charges Committee. The members of this committee include representatives from affiliate organizations; these members possess exceptional knowledge on the fees charged at airports and by governments. Ideally, this committee has the responsibility of addressing various reports regarding the existing charges in the aviation sector and the regulation of such charges. The committee has the responsibility of reviewing pricing standards, charges introduced by government regulatory services, and government contribution to security requirements of the aviation industry. Last but not least, the committee ensures that there is uniformity in the rate of taxation in tourism, aviation, and travel industries, in all member nations (Cento, 2008, p.66). Air Traffic Rights Air Traffic Rights form a significant component of the global issues affecting the aviation sector in the contemporary world. Ideally, these rights include the freedom of flight, freedom of landing because of technical setbacks, and the freedom of carrying revenue traffic between different countries. Air Traffic Rights also include the freedom of bringing, into a country, carrying revenue from other countries. Airlines also have the right to move revenue between two foreign nations with a condition that the origin of the service is the home country of the carrier. Air Traffic Rights also include the freedom of sharing codes and the freedom of marketing another airline’s services upon an agreement. Airlines are also entitled to hard rights and soft rights. Hard rights give the carrier the capability of including in the market, their venture of air transportation. These rights also enable air transport operators to access all designated routes and have airport slots according to their capacity (Shaw, 2011, p.80). On the other hand, soft rights permit carriers to market their services in regions with financial benefit, alongside the right to deal and handle both passengers and cargo. For example, these rights enable air transport operators to have sale representatives in foreign countries to enhance their international marketing. It is essential that all airlines have access to these rights hence the necessity of some recommendations with the objective of fostering Air Traffic Rights. These recommendations include the implementation of agreements on open skies and such regional arrangements as the EU (Reg.1008/2008; ASEAN) (Thomas, 2011, p.46). Governments and such organizations as the EU should also negotiate to regulate some of the rights to ensure that they benefit all the airlines in an equal manner. An example is the rights of maximum slots in airports; all global airlines should get slots in all commercial airports. Human Factors The performance of human resource is significant in shaping the current state of the global, aviation industry. In this context, performance efficiency and safety in the working area is of much essence. The performance of human resource has a direct relationship with safety in the aviation sector. For instance, research indicates that human errors are responsible for 75% of accidents in the industry, with other causes being issues in the cockpit design, weather, and substandard A/C types (Salas, Maurino, & Allard, 2010, p.55). Human factors, as global issues affecting the aviation industry, include physical factors, psychosocial factors, cognitive factors, and physiological factors. Physical factors include physical characteristics of an individual, such as weight, age, height, and sex. They also include an individual’s anthropometry, which refers to, such measurements as eye height and arm length. Physiological factors include such conditions as impaired levels of blood sugar, impaired perception, slow reaction times, low cognitive functions, and issues related with mood and fatigue. Psychosocial human factors that affect the aviation sector include styles of leadership, attitude of an individual towards safety, and culture. Human factors are essential in aviation because the negative forms can significantly cause aircraft accidents. These include lack of positional awareness, poor human-automation interaction, overdependence on automation, and poor cross-check by crew. There are a number of recommendations with the objective of converting human factors to the positive input in the aviation industry. For instance, there should be strict measures on SOP violators, targeting such actions as task overload, low level of vigilance, interruptions, poor management, wrong CRM methods, and complacency (Salas, Maurino, & Allard, 2010, p.55). Other recommendations include enhanced human resource briefings, enhanced communication in the human resource departments, stable approaches of the human resource, and strict adherence to duty priorities. Environmental Issues Environmental issues play a significant role in the shaping of the shaping of the aviation industry. There is an increased global concern over the impact of aviation on man’s environment hence the call for high scrutiny on airlines. The various airlines reportedly affect the environment in terms of noise and emissions, hence the need of the establishment of environmental standards. Notably, these standards can affect the performance of airlines according to the ease of their compliance. For instance, with respect to noise, measures include night-bans, restricted APU use, procedures of noise abatement, and preferential runway arrangements. Emissions of gases like carbon dioxide and hydrocarbons have effects on the ozone layer, alongside producing acid rain, and the greenhouse effect (Thomas, 2011, p.59). The control measures against these environmental effects have significant effects on the performance of global, airlines. The recommendations for the control of effects of environmental issues on aviation include an increased commitment by the aviation sector, with an objective of environmental protection. For instance, airport management authorities, airlines, and providers of air navigation services should set up strategies with an aim of increasing fuel efficiency. The authorities should also cap the overall emissions of carbon dioxide alongside cutting down emissions from the industry by 50% in the next 40 years (Thomas, 2011, p.61). Conclusion The aviation industry, in the world, is in a period of slow recovery after experiencing years of significant losses. The chief cause of the industry’s initial, poor performance was the recession of several economies and the Eurozone financial crisis. However, the situation is gradually alleviating as a result of steady containment of the principal causative issues. Ideally, the aviation sector plays a significant role in the international economy proven by such indicators as a high number of employment opportunities, huge revenues, significant profits, and an increasing number of the industry’s consumers. The industry has won the confidence of several consumers because of the high level of safety and security witnessed in the industry, in the recent years. The current state of the industry draws substantial influence from a number of global factors, which either complicate, or ease the operations of service providers. These global factors include the challenges of the 21st century, Air Traffic Rights, Competition and Pressure, human factors, and environmental issues. Bibliography Cento, A., 2008. The Airline Industry. New York: Springer. IATA, 2007. IATA calls for a Zero Emissions Future. IATA Press Release No. 21 (June 4). IATA Pressroom. Vancouver [online] http://www.iata.org/pressroom/pr/2007-06-04-02.htm [Accessed 19 January 2012]. IATA, 2012. Air Transport Market Analysis. [online] Available at http://www.iata.org/whatwedo/Documents/economics/MIS_Note_Nov12.pdf [Accessed 19 January 2012]. Kaps, R., Hamilton, J & Bliss, T., 2012. Labour Relations in the Aviation and Aerospace Industries: Carbondale. SIU Press. Kölle, R., Markarian, G & Tarter, A., 2011. Aviation Security Engineering: A Holistic ApproachArtech House intelligence and information operations series: London. Artech House. Salas, E., Maurino, D & Allard, T., 2010. Human Factors in Aviation: Waltham. Academic Press. Shaw, S., 2011. Airline Marketing and Management: Farnham. Ashgate Publishing, Ltd. Thomas, A., 2011. Soft Landing: Airline Industry Strategy, Service, and Safety: New York. Apress. Wensveen, J., 2011. Air Transportation: A Management Perspective: Farnham Ashgate Publishing, Ltd. Read More