Finance and Cost Structure. Management Assignment.

Finance and Cost Structure
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Finance and Cost Structure
Airlines are businesses and just like any business, their sole aim is to make profits. The profitability of any business is usually determined by the prevailing economic and environmental factors. Recessions are the worst economic crises that has affected many businesses and airlines were not spared. Following the deregulation and the recessions that occurred in the 21st century, airlines have managed to survive, but after taking radical measures to counter the sudden changes in the economic environment. Recessions are usually accompanied by several changes that include contraction of the economy, increase in the rate of unemployment, and a fall in production and sales, among others. The consequences of the 21st century recessions are evident in the losses and subsequent changes that large airlines made.
Unlike the 2001-2003 “double dip” economic crisis, the 2008 economic crisis was more severe and airlines reacted quickly, making appropriate adjustments in their capacities and cost levels. An effective step that some of the airlines took to cut their losses and maintain their profitability was to cut some routes whose cost of maintenance did not correspond to the profits that they were returning. This move saw several routes halted while others were reduced significantly. For example, Delta airline, based in Atlanta, had to cut its international flights by 15% (Yamanouchi, 2012). Among the international flights that the company cut operations included the Atlanta-Shanghai route, the Atlanta- Seoul route, and the Mumbai-Cape Town route. Another international airline that employed a similar measure was the Emirates airline. The airline has managed to survive several challenges that range from the aftermaths of the September 11 attack, the regional conflicts, SARS and the global recession. The company attributed this survival to their effective cost cutting measures that included reducing operations in certain areas that were deemed less profitabl...