Economic Analysis Forecast Macro Environment Airline Industry Delta Airlines 1996 Present

Topics: Economics, Unemployment, Macroeconomics Pages: 5 (1886 words) Published: March 28, 2009
Overview In today’s global economy, firms rely on the analysis of macroeconomic and industry data to develop performance improving strategies and increase their profitability. With this in mind, the following report consists of an analysis of the U. ... macro environment, the airline industry, and Delta Air Lines. It covers both a historic period from 1996 to 2000 and a current period from 2001 to the present. ... Even though there has been current significant improvement in GDP, there are new concerns regarding deflation, the present jobless recovery, and the fact that production is increasing at a faster rate than demand. ... Subsequent analysis will focus on the changing factors that have lead to these results. When facing economic expansion or recession, the Federal Reserve Board (the Fed) relies on different measures to potentially influence the economic environment. ... The Fed’s current approach has been the opposite; it has expanded the money supply to lower the targeted federal funds rate in order to try to pull the economy out of the recession and generate sustainable amount of economic growth. Economic expansion (1996 2000) contributed to Delta’s and the overall airline industry’s positive performance. On average, the airline industry contributed 0. ... These macroeconomic events had direct effects over the airline industry. For example, increase in labor and fuel costs forced labor cuts in the industry and the grounding of a significant number of aircraft. ... The different factors affecting the industry’s performance also have direct effects over Delta Air Lines. This is evidenced by the generation of profits during the expansion period (totaling US$ 4,040 million) and losses during the period of economic downturn (totaling US$ 2,934 million). With loss still remaining on their income statements, major carriers, including Delta, are searching for different ways to face the new low-cost competition. ... By analyzing past and current trends in the macroeconomic environment, in the airline industry, and in Delta’s performance, respectively, we highlight existing links between each. It is important to mention that our analysis focuses solely on the commercial aviation sector in order to satisfy Delta’s informational needs. Based on this research and analysis, our report is intended to provide an objective macroeconomic and industry forecast for the coming year and provide recommendations to Delta. The Macroeconomic Environment We now analyze the U. ... macroeconomic environment during the historic and current periods. ... GDP Analysis To understand the changes in GDP behavior we look at its basic components (See Average Growth of Real GDP Components graph). ... These international economic problems caused the dollar to strengthen against foreign currencies, which in turn debilitated U. ... This deteriorating environment gave way to the current period, greeted by recession. ... • Worries related to the war with Iraq, as well as persistent concerns about the course of economic activity and corporate earnings, created a high degree of risk aversion among business executives that constrained capital spending and hiring. ... These factors will be discussed in more detail in subsequent analysis. ... Inflation Analysis The general trend for inflation during both the historic and current periods has been to remain low. ... For example, in the airline industry, Internet fare bookings have decreased overall commission expenses. ... However, profit margins were contracted as rising costs created higher prices in a competitive market environment. ... Capacity Utilization In our previous analysis we mentioned the effects of increased productivity and market competition on inflation. ... These factors were fueled by the overall favorable economic conditions. ... After analyzing the differences and trends in the macroeconomic environment between the historic and current periods, we now focus our attention on the Federal...
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