The market analysis section includes the demand and supply analysis, as well as the threats and opportunities that the commercial airline industry faces. The following pages include this analysis.

In the airline industry, economic cycles are a regular part of everyday life. Only twice has the industry experienced negative annual growth traffic – in 1991 and from 2001 to 2002. Economic growth is the main long-term driver behind air travel growth as well as globalization and the internet which are allowing people more opportunities to fly today.

During 1992 – 2002, the airline industry experienced a 76 percent increase in the amount of taxes that they paid annually. In 1972, airline taxes were at 7 percent ($15) and then rose to 15 percent ($29) in 1992 on a $200 roundtrip ticket (The Perfect Storm). But in 2002, the amount of taxes paid had risen to 26 percent ($51) on a $200 roundtrip ticket (The Perfect Storm). The increase in taxes has added to the increasing costs of the industry at an estimated $4 billion annually.

The company believes it must quickly reduce its operating losses, which are a staggering $4 billion, in order to become competitive and sustain its current operations (www.amrcorp.com). The company plans to cut cost through initiatives such as scheduling efficiencies, fleet simplification, streamlined customer interaction, distribution modifications, in-flight product modifications, and various others (www.amrcorp.com).

Any war, as one can see, can have huge impacts on a particular industry and the economy as a whole, and that is why it is classified as a threat. For the airline industry, the war with Iraq has proven to be detrimental to its success. The impact of war is considered a long-term threat to the airline industry because war is inevitable. The time and place might not be known, but one will occur. Our history has proven that throughout the years, and the impact of a war is enormous.

In the second-quarter, income statements showed some improvement which was directly related to a government rebate given to major airlines. The major airlines during the second-quarter are expected lose more than $1 billion, which is still an improvement from first-quarter losses of $3.5 billion (business week). Overall, airline revenues are still slumping due to the decrease in demand for air travel accompanied with an economy that has seen better times.

Some topics in this essay:
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