Profitability of Aviation Industry - Essay Example

Running head: PROFITABILITY OF AVIATION INDUSTRY Profitability of Aviation Industry Introduction There has been intensive debate over investments in the aviation industry especially in this twenty first century. Airline companies have never generated reasonable returns in their operation history. Despite the fact that specific airline companies have shown good performances, the entire industry has exhibited slow growth. Deregulation and competition introduced in early decades, have been depicted as some of the barriers that limits new investments into the industry. These conditions gave established aviation companies the ground for laying tough foundations for competition for which new entrants will find to hard break through in a very long time. Other risks associated with the airline industry have drastically brought down investment confidence and thus contributing to the notion of non-profitability of the industry (Pilarski, 2007). Based on the available data, the industry exhibits a fairly negative economic and slow growth trend. There are further implications indicating that the future of the industry will not change any soon (Matt, 2009). With incessant experiences of losses because of difficulties in making profits, the future of the industry becomes bleak, leaving investment prospects in great levels of uncertainty. The idea that the aviation industry is not profitable is not ultimately true because there has been increasing demand for aviation services. The ideologies do not actually indicate sufficiently that the industry has attained its maturity or not profitable. As such, one cannot stop to ponder about what must be the thrust behind this industry economic downturn. This paper will thus explore opportunities that exist in the aviation industry that can generate huge profits as opposed to the mantra that the industry is unattractive investment field. There is possibility of making money in the aviation industry According to Pilarski (2007), it is extremely difficult to make money in the aviation industry for various reasons. Cyclicality of the industry operations is one major cause of undesirable levels of return on investment. The industry has long been perceived as supplier of opulence rather than essential products for human life. Heavy taxes levied by the government have proved very burdensome for the industry especially when the government considered aviation industry as a major source of revenue. Government intervention in 2002 in funding aviation was one of the indications that the aviation industry was suffering massive financial crisis. Government action in bailing out aviation industry was a contentious issue especially because the industry is independent of the state. After careful review of the state, size and influence of aviation industry, the government was forced into forming a funding body, the latter found out that it was difficult for aviation companies to refund the funds they borrowed due to the size of losses they experienced and thus the body did not yield as benefits as expected. This perception does not recognize that government intervention in business management has not only been done in the aviation industry, but also in other industries. The government ensures that it sustains businesses during difficulties, such that employment of the citizens is safeguarded and equilibrium in government revenue sources is maintained (Johnson, 2009). From a critic point, Pilarski (2007) argues that the current state of the aviation industry is an experience of massive losses over the last one decade citing numerous reasons. To begin with, fears associated with international terrorism, which have negatively affected aviation industries, especially the US aviation, have greatly contributed to the current state of losses experienced in the aviation industry. This implies that terrorism will forever remain a threat to the aviation industry, which is true but bear no direct influence on profitability of the industry. The United States government has established stringent policies, such as the homeland policy, which safeguards the aviation industry from acts of terrorism. The threat of terrorism has thus been checked and bears no direct influence on the losses made in the aviation industry. With surging demand for aviation services because of globalization, which has increased the rate at which countries trade with one another, it is clear that the aviation industry will achieve fast growth in the dimension of passenger volume and eventually exhibit high return on investments. This is an excellent example of the possibility of making great returns in the aviation industry. Many scholars have argued that the aviation industry has grown from being luxurious to an essential service provider resulting to high concentration of airline companies in the market. This has consequently reduced the prestige or class associated with using flights, leading to massive losses through price reduction. Increasing demand brought by globalization will automatically balance the laws of demand and supply to keep the aviation industry at profit making margins (Matt, 2009). Although competition has remarkably increased over the last few decades, companies have developed many strategies to keep abreast with their rivals in the market. Most corporations have resorted to mergers and acquisitions to counter the adverse impacts of the ever increasing competition. The possibility of making profits has not been completely erased. As identified by Johnson (2009), competition is not one dimensional. A multidimensional approach that encompasses strategic analysis of the market is critical for survival of various airline corporations and continual earning of profits. It is possible that companies will continue to make profits in the aviation industry, if they strictly observe and implement strategic planning to avoid unnecessary losses resulting in increased competition. Competition takes into account the most favorable factors a company can make use of to keep leading others in the market. Airline companies have the capacity to develop sustainable competitive advantages that can enable them to face competition head-on. Other scholars have argued that the cost of an aircraft itself is a challenge to investors thus, limiting acquisition of other aircraft to increase operational efficiency. Although this is true, the cost of an aircraft is not recurrent and through an estimated period of few years, the full amount is achieved. Calculation of profits does not have to include the full cost of the plane in each fiscal year. Divisions can be made that may estimate the number of years to recover full cost (Matt, 2009). Pilarski (2007) argues that it is not possible to decompose the elements involved in creation of the massive losses experienced in the aviation industry. Citing high numbers of required labor in the industry and high costs of fuel brought about by conflicts in oil producing countries and the West, he contends that profit attainment is a tough exercise to be achieved in a long time in the aviation industry. However, there is an option that can be applied to reduce these expenses. If airlines do not have high numbers of clients, there is the need to review the sizes of their human resources. Retention of redundant workforce may lead to increases of expenses. Strategic management is crucial in cutting cost and steering airline companies up the economic ladder. This leads to reduction of losses at the end of each fiscal year. Reduction provides a platform to utilize only the required human resource in the airline industry and thus achieve profits maximum (Robin, 2010). Historically, current statistics are not greatly influential of future outcomes if human intervention is possible. Thus, current losses and low profits experienced in the aviation industry do not necessary give implication of impossibilities in achievement of profits, since it is through managerial intervention that such trends may be reduced. Through this approach therefore, future high expectations of achievement of profits becomes a practical possibility. Southwest Airline is a classical example of good performing companies in the industry, which indicates that it is possible for huge profits to be generated within aviation industry. By improving management in the industry, profit making will become a guarantee. Pilarski (2007) puts forth that bad management practices have made it impossible for airline companies to acquire profits. If this problem gets handled such that highly qualified and efficient managers are employed in the aviation industry, then profits will automatically be realized. The possibility of making money within the industry will be evident and the airline industry will lack questions on how to make money. China and India for instance, have reaped big from aviation industry and realize how crucial the industry is to the economy. Conclusion Aviation industry is undoubtedly facing numerous hurdles that make it seem less attractive industry to venture. Cyclicality, misconception of the industry as luxury provider by consumers and heavy taxation by the government are some of the challenges that have marginalized the returns on investment in the industry. However, it is evident from the argument above, that there are numerous possibilities of realizing great profits within the aviation industry. Considering the increasing demand of aviation services as a result of globalization, government intervention strategies to sustain the industry and the employment situation in the country, it beats logic not to think of the aviation industry as one of the most important industries to the economy. China and India, for example, are some of the countries that have reaped the benefit of the aviation industry and know how crucial it is to economic development. Applying strategic management approaches in aviation and the elimination of employee redundancies will greatly improve the rate of return on investment in the industry and make it one of the most attractive investment avenues. References Johnson, R.H. (2009). Startup Strategies. New York, NY: CIO. Print This reference was preferable because it offers insight into how companies can employ strategy in market survival and thus make the aviation industry remain profitable. Matt, E. M. (2009).How to make money in the flying industry. New York, NY: Flying, 94, pp. 3 - 102 The reference was suitable since it offers options on how to make money in the aviation industry. People with opposing views would get perception into profit making reality within it. Pilarski, A.M (2007).Why cant we make money in aviation? Aldershot, U.A: Ashgate. Print As a primary source, this reference offers a foundation for this essay. Robin, I.T. (2010). Minimizing costs associated with airline industry. Houston, Texas: Wiley. Print This reference gives further options that oversee negated views on using too much unnecessary expenses to reduce profit. These are discussed as avoidable in the book. Read More