Managing in Troubled Times Case Study

US Airline Industry: Impact of Fuel Price Rise

OR

Abstract:
In the first half of 2008, airlines in the US were going through a rough patch because of frequent rises in fuel prices. The airlines tried to pass on the increased cost to passengers by increasing airfares and fuel charges. Some of the airlines even started levying charges for baggage checking. The airlines also considered various alternatives for cutting costs and increasing revenues. The strategies included decisions like fuel hedging, and increasing the fuel efficiency of their fleet. The other strategic alternatives included cutting overheads by reducing employee strength and industry wise consolidation. Despite these efforts, the consistent and sharp increases in fuel prices put downward pressure on the profitability of the US airlines. It is yet to be seen how far the efforts of the US airlines succeed in improving their profit margins.

Pedagogical Objectives:

• To understand the macroeconomic factors on the performance of an industry.
• To understand the strategies adopted by the airlines to reduce costs and increase revenue.

Keywords : US airline industry; Fuel price rise; Delta Air Lines; Northwest Airlines; Industry consolidation; Cost cutting strategies; Fuel hedging; United Air Lines; Aviation turbine fuel; Crude oil price

Contents:

• Airline Industry in the US
• Fuel Price Trends
• Strategies of the Airlines to Combat Fuel Price Rise