Sample Aviation Essay Paper on Current Issues Affecting Aviation Industry

Current Issues Affecting Aviation Industry

The aviation industry has come a long way since its founding in the early 20th century. Over the years, the industry has made huge strides in scheduled flights, profitability and safety, wherein fatalities have reduced to one in 7.1 million air passengers (Oster, Strong & Zorn, 2013). Reports from the International Air Transport Association indicate an even safer aviation industry, reporting one accident in every 1.6 million flights (Oster, Strong & Zorn, 2013).  Part of the reason for increased safety in the aviation industry has been technological improvements in aircraft, avionics, and engines all of which have come together to guarantee improvements in aviation safety. Safety, however, has not been the only boon in the aviation industry; there has been an increase in the number of passengers travelling by air over the years. Air transport has seen increased traffic, transporting approximately half of the world’s population yearly (Ives, 2017). However, the growth in the aviation industry has exposed it to various issues that the industry has to deal with. With reference to Delta Air Lines, the industry continues to deal with thinning profits and growth due to competition, financial and environmental sustainability continue to gnaw at airlines, even as safety continues to be a concern of industry stakeholders.

As one of the largest airlines in the world, Delta Air Lines enjoys daily flight and operations within the U.S. and scheduled flights across the world to different destinations. At the start of the aviation industry, and for a long time within the industry, Delta and other airlines enjoyed monopoly over the transatlantic route, flying passenger to and from destinations across the Atlantic (The Economist, 2016).  Over the years, however, many other airlines have joined the industry offering cheaper flights that are not only eating into the big airlines’ passengers, but also on their profit margins. The big airlines continue to face major competition from smaller airlines like those that Delta is facing in Seattle with Alaska Airlines. According to Yamanouchi (2016), Alaska Airlines seems determined to defend its turf in Seattle, where it has its headquarters and where Delta Airlines intends to expand into by establishing a hub at the Seattle-Tacoma International Airport.

Delta-Alaska Airlines battle is only symptomatic of the competition the aviation industry continues to face, particularly for the big airlines. Internationally over the Atlantic, Delta, American Airlines and United Airlines continue to face competition from new entrants such as WOW and Norwegian Air Shuttle, all of which are new entrants into the industry (The Economist, 2016). With a proposition of offering passengers cheap ($387 between New York and Berlin in comparison with $2,123 for Delta) flights over the Atlantic, the small airlines are fast eating into the big airlines’ passenger traffic (The Economist, 2016). The small airlines are succeeding on their onslaught of the big airlines as according to the Economist (2016), Norwegian increased its flights across the Atlantic y 34 percent in 2015 and by 44 percent in 2016.

The casualty of the small airlines’ blitzkrieg on the passenger traffic for the big airlines and the aviation industry consequently, is profitability. According to Shankman (2014) profitability is one of the major issues that airlines face in the current volatile environment. Shankman (2014) informs that while there are routes that remain aviation-friendly from where airlines generates handsome profits yearly, the advent of the many airline companies operating within the industry is harmful to profitability. Shankman (2014) avers that airlines make $6 on every passenger, which translates to 2.4 percent profit margin with $750 billion in revenue and $18 billion in profits. Such margins are extremely low, and increased competition within the industry threatens to thin the margins even further.

Competition and its hit on passenger traffic is however not the only issue that Delta continues to battle in regards to its profitability. The international economy is currently in turmoil, and while the U.S. market has experienced a rebound over the past few years after the recent credit crunch, international markets are still in turmoil. The U.S. dollar has been strong against other international currencies, a situation that weakens the purchasing power of foreign passengers to the U.S. (Yamanouchi, 2016). Moreover, with a turbulent international economy, there has been a considerable dip in passenger demand for air transportation. Both cargo and passenger traffic, especially for premium traffic have experienced a fall in demand, with projections of low demand as the international economy, particularly Europe undergoes the current turbulence. The situation has watered down revenue and rightly, the profit margins for many airlines—not just Delta. The consequence of the strong dollar has been decreased revenues for the airline, particularly for its international flights.

Profitability is one half of sustainability that is currently an issue in the aviation industry, the other half is environmental sustainability. While sustainability is a requirement for any industry, sustainability is especially an issue for the aviation industry that burns fuel for aircraft propulsion (Shankman, 2014). Although aircrafts entering the business currently are technologically equipped to be more fuel efficient, the carbon footprint of the aviation industry is still a concern for the stakeholders. Environmentally friendly customers continue to demand less carbon footprint from the industry, a factor that lowers revenues even further. Additionally, customers demand the use of biofuels by airlines. While the biofuels are environmentally friendly, they are short in supply and excessively expensive (Shankman, 2014). Environmental consciousness and regulatory demands from governments and territories continue to drive higher costs, which demand small quantities. In this regard, costs remain high, even when demand is low.  Environmental sustainability consequently is an issue for the aviation industry, and particularly for airlines such as Delta, which have to meet regulatory and government thresholds for sustainability at the cost of operational profitability.

Concern for the environment; however is not the only environmental issue that the aviation industry has to deal with. Climate change is bound to have even far-reaching effects on the operation in the aviation industry. Ives (2017) informs that the global rising temperatures are already affecting airports, most of which were designed for older cooler days. Climate change today however has had repercussions on airports melting asphalt on airport runways, causing concrete slaps on runways to buckle, while at the same time putting the runways in danger of flooding from sea or rivers as most of the airports sit near seacoasts or river deltas (Ives, 2017). The main concern for airlines in the face of rising temperatures is hot runways, which mean rescheduling flight takeoffs to cooler times of the day, as well as burning more fuel while awaiting landing for airports with only few longer runways (Ives, 2017). Other operational inconveniences, which could have long-term economic impact on airlines, include having lighter loads, especially for airlines operating from temperate locations to allow smooth takeoffs and landing.

While biofuels are expensive, normal jet fuels are subject high price volatility. Jet fuel is a concern for the aviation industry given the huge role that the fuel plays in determination of operational costs for the airline companies. Currently, Delta and other U.S. airlines enjoy considerably low fuel prices, largely because of fuel-hedging contracts most of the airlines have with jet fuel producers. Forward interest agreements are among the methods airline companies use as cushions against the volatility of fuel prices in the aviation industry (Fernando, 2016). Although the recent dips in fuel prices have enabled Delta to invest in technology and other amenities in its bid to maintain a strong leadership position in the market, it remains to be seen how long the low prices will last (Yamanouchi, 2016). Fuel price volatility is, and will remain, a great issue for the aviation industry; the current stability in the low prices of jet fuel is only temporary. Market forces are bound to stir the prices, an event that will shake up the volatile industry.

Regulatory pressures and requirements are additionally issues that continue to face the aviation industry. Regulations traditionally touch on safety, operations and competition. In light of airline tragedies such the recent Malaysia Airlines flights MH 370 and MH 17, where all the passengers and crew lost their lives, regulatory authorities pass laws that aim at increasing passenger safety (Shankman, 2014).  Any passage of regulatory rules and regulations has substantial costs on the airlines in technological investment. For instance, with the Malaysian Airlines tragedies, there are talks to include technologies that will enable better aircraft tracking (Shankman, 2014). While stakeholders may laud such efforts as progressive, installing and integrating such technology within aircrafts and the complex airline system is not only costly, but also inconveniencing, and sometimes a cause of subsequent tragedies.

Regulations touching on operation include airlines flying over conflict zones. Shankman (2014) argues that the MH 17 tragedy brought to light airline operations over conflict zones. Conflict zones present a delicate issue for airline operations, given that while civilian aircrafts may only be instruments of peace, there is risk of the aircraft being shot down. The tragedy therefore, opened conversation on the need to work out rules of engagement for operations in such conflict zones (Shankman, 2014).

Regulation as an issue in the aviation industry also covers fairness in competition among airlines operating in the global sphere. Of concern, particularly for Delta and other American airlines has been the onslaught of the cheap flights eating up their market share. The airlines want to use regulation to quash their competition by asking the Department of Transportation to stop their competition (Norwegian) from operating across the Atlantic (America and Dublin) (The Economist, 2016). Similar regulatory under dealings are however also coming from the other side of the Atlantic, where Britain, through its transport minister, was pressurizing his American counterpart to allow operations by the Norwegian (The Economist, 2016). While such actions may seem regulatory, they are all informed by the volatility and the competitive nature of the aviation industry, and the fact that each airline is looking to defend its turf, while navigating the numerous and intricate issues that plague players in the aviation industry.

References

American airlines can no longer ignore cheap European rivals on transatlantic routes. (2016, Oct 19). The Economist (Online), Retrieved from https://search.proquest.com/docview/1830760804?accountid=1611

Fernando, S. (2016). Risk Management Practices in the Airline Industry. Simon Fraser University. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjg7aPWtJvWAhWLaRQKHShLCekQFggsMAA&url=http%3A%2F%2Fsummit.sfu.ca%2Fsystem%2Ffiles%2Firitems1%2F3430%2Fetd2415.pdf&usg=AFQjCNH-re-_0eDVqJIhrF0Id8dcAj_qLw.

Ives, M. (2017). In a warming world, keeping the planes running. The New York Times. Retrieved from https://www.nytimes.com/2017/09/30/business/airports-climate-change-global-warming.html.

Oster, C., V., Strong, J., S., & Zorn, C., K. (2013). Analyzing aviation safety: Problems, challenges, opportunities. Research in Transportation Economics, 43, 148-164. Retrieved from http://faculty.wcas.northwestern.edu/~ipsavage/104-13.pdf.

Yamanouchi, K. (2016). Profits, problems will greet Delta’s next CEO. The Seattle Times. Retrieved from https://www.seattletimes.com/business/profits-problems-to-greet-deltas-next-ceo/.