More trouble in the skies

The ongoing turmoil in the airline industry continues, with the Irish national airline Aer Lingus announcing worse losses in this BBC news article

Spare capacity prompts a fall in business investment

The recession is creating a growing amount of spare productive capacity across many different markets and industries. From container ships to hotels and from steel plants to airlines, the fall in demand has lowered capacity utilisation and put a big squeeze on profits. That pressure on profit margins comes not just from weaker revenues. Keep in mind that many businesses have a large fixed cost component such as the overhead costs of operating a network. Thus when output is contracting, the average fixed costs of production increase.

Declining demand and rising productive slack inevitably cause a fall in planned investment spending - economists term this a negative accelerator effect. BBC news reports that British Airways is cutting capital spending in response to the slump in demand and mounting losses. “The airline said it had cut spending by 20% to £580m ($952m) from £725m, and had lengthened its schedule of orders for 12 Airbus A380 aircraft.”

Further evidence for the reverse accelerator affect comes from Japan where Japanese firms cut their capital spending by a record level in the first quarter of 2009. In contrast Stagecoach is increasing investment in a fleet of greener buses. 

Business strategy video - two interviews with CEO of Virgin Atlantic

Two video clips make ideal stimulus material for a business strategy lesson…

Trading down - business class feels the pinch

Next time you step onboard Virgin Atlantic, Quantas, Lufthansa or British Airways, chances are you might end up sat next to a high-flying business person who’s feeling a little peeved at having to sit in economy.

Business cutbacks and job losses

The British economy is in falling into a recession and this brings about a fall in the demand for labour and a rise in unemployment.

In many of the examples I have shown below, the root cause of the labour shedding is a decline in demand in a related industry – for example a cement factory that is finally shutting down because of the severity of the slump in new house-building. Or the employees at a local newspaper in Guernsey in the Channel Island affected by the steep drop in demand for traditional forms of media advertising. Markets are inter-related and there are few businesses in the UK at the present time that can describe themselves as ‘recession proof’.

The Biz Quiz - 6 October 2008

Banks, pizza and airlines all feature in this week’s Biz Quiz - our 10-question test on the latest business news…

Pricing policy - the extra charges made by low cost airlines

This would be a good article to use when teaching pricing strategy in marketing.  It discusses the various “add-ons” charged by the UK’s low-cost airlines that can make a significant difference to the actual cost of a trip for the unsuspecting traveller…

The worst trading environment the airline industry has ever faced

The title of this blog piece says it all.  That is the stark conclusion of BA’s CEO Willie Walsh as he announces a sharp drop in profits and some significant cost-cutting actions…

Business Strategy - BA plans merger with Iberia

We’ve used British Airways as a rich case study in our A2 Business Strategy workshops for a couple of years.  It looks like there will be plenty of scope to revisit the business in future workshops following today’s announcement…

Ryanair flies into the path of the economic storm

A dramatic opening line in an Guardian article suggests that bad news from Ryanair means that the “boom in European low-budget air travel has turned to bust”…