Economics Snapshot - Losses in Global Aviation
The global aviation industry is in crisis
IATA forecasts that airlines will lose $4.7bn in 2009
International passenger traffic is falling at an annual rate of 10%
Fares for First and Business class passengers have dropped by as much as 40% this year
In the decade to the end of 2007 airlines globally generated a revenue of $3.6 trillion and made a net profit of zero
Source: Wall Street Journal
Air passenger duty - a tax too far?
Airlines and trades unions representing those employed in the aviation industry are lobbying the British government for a rethink about the proposed increases in air passenger duty (APD).
The duty is currently £10 for short-haul flights and £40 for longer journeys, costs which airlines pass on to passengers. Under the government’s plans, the tax will rise to £85 for Australia and £60 to the US by November next year. The revised APD will be based on four bands set at intervals of 2,000 miles from London. This BBC news article provides a useful background on some of the key economic and social arguments relating to the duty and the views of different stakeholders.
Last Edition for Newspapers?
The recession and the internet are having a huge impact on the economics of traditional newspapers - no newspaper is immune and some of the world’s most famous titles such as the New York Times are making huge losses and facing closure.
read more...»General Motors - Braking to Avoid Oblivion
It is an iconic business whose deteriorating commercial health cuts deep into the very fabric of the industrial base of the United States. I was listening to one of those early morning business programmes on radio today when a market analyst claimed that the stockmarket capitalisation of General Motors had fallen to its lowest level for fifty years.
read more...»Left on the Shelf
Is this just another example of an independent bookseller finding it impossible to survive amid the deep-discounting of the online bookstores or increasing retail dominance of the supermarkets who focus on a selection of best-sellers? Actually the answer is no.
read more...»Bitter blow for pubs as more opt to call last orders
It is a bitter blow for the licensed trade but 1.2 million fewer pints of beer are being drunk every day in Britain this year compared to last and over twenty pubs a week are calling last orders for the final time.
read more...»Beanscene battles to avoid being a has-bean
The BBC reports that one of Scotland’s fastest growing coffee houses has gone into administration as bottom-line losses became unsustainable. Beanscene’s 14 shops are spread across Scotland from Ayr to the border town of Hawick to the old town in Leith.
read more...»Turning points for the labour market
It usually takes some time for turning points in the broader economic cycle to show through in the labour market numbers - in econ-speak, we talk of unemployment being a lagging indicator of the rest of the economy. Job losses make the headlines but new jobs created rarely filter into the news. But such is the nature of our flexible labour market that the jobs data looks likely to start moving in the wrong direction with greater haste than in previous downturns. Just listening to the banter in my local gym, I have picked up that many of the small to medium sized businesses in my area are battening down the hatches and looking to cut their overheads - if businesses want to survive they have little choice.
Grounding flights - the shut-down point
I normally teach about there being a shut-down price - a price so low that a business cannot hope to cover even the variable costs of production and one that implies that it might be better to close down production in the short term. Perhaps I should be tweaking this to talk about the ‘shut-down point’ - focusing less on the price facing consumers, but more on businesses making calculated decisions about which shops to keep running, which factories to close and which products to continue selling.
The airlines provide an example of this. Faced with surging aviation fuel prices, slowing consumer demand and expensive take-off and landing fees, Ryanair has become the latest airline to ground some of its flights and cut back on operating capacity in a bid to stem losses. In his typically colourful language, Ryanair CEO Michael O’Leary has blamed the “twats” at the British Airports Authority” for his decision. In today’s Guardian he claims that “the airline would lose less money by grounding its aircraft and not hiring personnel to fly them rather than operating them at a loss from Stansted.”
Grounding planes is his response rather than abandoning route - the airline will be making a 14% reduction in the number of weekly flights at Stansted this winter, from more than 1,850 a week to to just under 1,600 this winter. The number of planes based at Stansted will fall from 36 to 28. The number of weekly flights to Dublin will fall from 58 to 50, to Glasgow from 29 to 20 and to Rome CIA from 35 to 28.
EasyJet (24th July) has also announced reductions in their winter capacity as a cost cutting measure - The Telegraph reports that “Oil price inflation had increased the company’s fuel bill by £185m for the full year”
UK house prices down 2% in June
Just a 2% fall this month - equivalent to £800 a week. The 6.1% drop over the past 12 months is the highest recorded by the Halifax, Britain’s biggest mortgage lender since March 1993 and compares with a 3.8% annual fall in May. I remember during the housing boom, the talk at supper parties would be of arriving home from work having seen your property rise in value by more than you had earned in your job. Now that property prices are on the slide, the reverse is often true!
Martin Ellis, Chief Economist of the Halifax is quoted as saying “"A strong labour market, low interest rates and a shortage of new houses underpin housing valuations. Our research shows that the labour market is the key driver of the housing market. Employment is at a record high.”
So now all eyes are turned on the labour market for signs of a downturn in employment. There have been plenty of high profile job losses this week - but there tends to be an asymmetry in the news coverage - new jobs created rarely hit the headlines.
Most Popular Topic Tags on the Economics Blog
recession, demand, economics, price, unemployment, prices, inflation, investment, costs, profit, downturn, supply, trade, debt, employment, confidence, euro, gdp, competition, capacity, risk, production, china, oil, incentives, exports, expectations, housing, pay, manufacturing, sterling, food, profits, property, mortgage, tutor2u, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, deflation, airlines, innovation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, saving, google, keynes, opec, wealth, depression, moodle, depreciation, jobs, credit crunch, competitiveness, economic cycle, cars, externalities, stocks, infrastructure, environmental, strategy, tim harford, carbon, vle, monopoly, subsidy, evaluation, management, eu, losses, protectionism, spare capacity, inequality, environment, poverty, bank of england, budget deficit, construction, behavioural, wages, macroeconomics, carbon trading, steel, commodities, output gap, skills, japan, oligopoly, currencies, imports, bbc, stagflation, contestable, cpi, agflation, farming, newsnight, choices, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, amazon, fiscal stimulus, single market, pricing, dan ariely, nationalisation, cartel, pollution, eton college, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, currency, quantitative easing, facebook, income elasticity, stakeholders, current account, brazil, coffee, savings, microsoft, monetary policy, crowding out, collapse, barriers to entry, multiplier effect, economies of scale, suppliers, price discrimination, uk economy, development, quiz, apple, surplus, taxation, tesco, free, scrappage, labour market, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, cost of living, poverty trap, merger, growth, speculation, edinburgh, ownership, discrimination, northern rock, global, cost benefit analysis, ireland, oecd, supply chain, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, etonomics, iphone, starbucks, trade deficit, happiness, budget, human capital, capital, subsidies, immigration, eurozone, takeover, exploitation, ecb, paradox of thrift, wiki, advertising, public sector, labour force survey, peter day, utility, wants, brand, tax, poland, iceland, blog, recovery, foreign exchange, european union, indirect tax, robert frank, roger bootle, ocr economics, heathrow, hbos, hotels, freight, creative destruction, federal reserve, kaletsky, price war, information failure, crude oil, spain, gini coefficient, transport, government borrowing, leverage, sony, migrants, us economy, animal spirits, stephanie flanders, waste, information, fishing, milk, eu enlargement, anchoring, obama, entrepreneurship society, aggregate demand, needs, internet, forecast, discounting, real income, copper, deficit, contestability, nissan, evan davis, companies, fairness, geoff riley, blogging, standard of living, aqa economics, consumer welfare, martin wolf, renewable, labour mobility, collusion, imf, fair trade, pubs, income tax, obesity, res, disposable income, david smith, national debt, devaluation, consumer surplus, corus, vacancies, global economy, sub-prime, tariff, twitter, price capping, joint venture, accelerator effect, guardian, startups, youth unemployment, yuan, immobility, edexcel economics, edmund conway, redundancy, tata, walmart, relative poverty, sentiment, tickets, coal, vehicles, cash, base rate, russia, diesel, marginal cost, external shocks, movies, liquidity trap, contestable market, income elasticity of demand, libor, broadband, fixed costs, comparative advantage, accelerator, allocative efficiency, pensions, training, economic efficiency, trend growth, king of shaves, satisficing, undercover economist, hot money, price mechanism, deleveraging, positional goods, congestion, jobless, social entrepreneur, apprenticeships, hyperinflation, migration, financial times, age structure, cyclical, chris coleridge, monopoly power, pay cuts, reserve currency, ryanair, wheat, mervyn king, ucas, law of unintended consequences, carbon tax, aldi, gillette, deindustrialisation, barclays, price volatility, yahoo, organic growth, liberalisation, house prices, richard thaler, derived demand, veblen goods, paul krugman, schumpeter, royal mail, markets, diseconomies of scale, logging, green revolution, tax burden, savings ratio, pension, demography, structural, nhs, job losses, ocr, the economist, scotland, cross elasticity, brics, redistribution, biofuel, drugs, gold, nelson thornes, research, producer welfare, ebea, footfall, british airways, income distribution, social costs, ft, enterprise, natural monopoly, tariffs, general motors, o2, deforestation, economic welfare, bonds, asda, will king, automatic stabilisers, landfill, long tail, jim o'neill, disincentives, economax, energy, podcast, share prices, external shock, slump, resources, profit margin, fiscal drag, hysteresis, ftse, philip allan, hedge fund, students, buy to let, logic of life, contraction, equity, elasticity of supply, oil prices, market power, health, ben bernanke, market structure, global business, enlargement, retailing, supply-side, hedging, declan curry, nokia, chris anderson, bric economies, diane coyle, dynamic efficiency, price fixing, fiscal policy, winners curse, zimbabwe, stimulus, hamish mcrae, toyota, john kay, claimant count, green shoots, compound interest, contestable markets, frictional, rory cellan-jones, status races, healthcare, repossession, eastern europe, public good, credit, royal economic society, sustainability, invention, accession countries, probability, sustainable growth, gnp, superfreakonomics, vertical integration, inflationary pressure, business model, default behaviour, rentokil, retirement age, business cycle,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
