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The Airline was referred to the company which offers air transport services to the passengers or cargo. Whereas airline industry can be defined as the number of firms that produce similar goods and services and therefore are in competition with one another. In this sense, the airline industry is a segment or part of the broader air transportation industry. Broadly defined, the airline industry consists of a vast network of routes that connect cities throughout the country, and indeed the world. Over this network, large number of airlines carries passengers and cargo on scheduled service. Economists describe airline industry as closely approximating oligopolistic market structure. Thus, only a few companies producing either similar or differentiated products. Oligopolistic industries typically are characterized by high barriers to entry because it require high capital to form this company, the need for the technical and technological advancement, control of patent rights and so forth.

Business risks are the possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors such as sales volume, competition, overall economic climate and government regulations.

This paper will focus on new risks and impacts that threaten the survival of airline business due to the changes of 21st century business environment.

Risks and Impacts________________________

As an airline industry remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries. However, to still remains in this industry, each airline have to work hard in order to survive in this industry. Like other business, airline business also facing a lot of challenges. Here, this paper will explain about the risks that influenced the airline business. There are:

Figure 1: Risks that influenced survival of airline business

Political Unrest
Broadly defined, political risk refers to the implications businesses and government may face as a result of what are commonly referred to as political decisions. It also can be defined and understood as any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives. In business perspective, the implication for political risk is that there is a measure of likelihood that political events may complicate its pursuit of earnings through direct impacts such as taxes or fees or indirect impacts such as opportunity cost forgone. As a result, political risk is similar to an expected value such that the likelihood of a political event occurring may reduce the desirability of that investment by reducing its anticipated returns. Political instability in a country can seriously impact the prospects for the tourism industry in that country. This is because, radical changes in a country politics can cause tourists to fear for their safety and, therefore, avoid a country. There is no doubt that political unrest will cause people to think twice about being a tourist in a country.

The continuing uncertainty and unrest in the Middle East and North Africa (MENA) has influenced global growth figures. The ongoing political turmoil in MENA is being felt by airports and airlines across the region and worldwide. Refer to the IATA report, it estimates the political unrest in the region cut worldwide international traffic in Feb-2011 by about 1%, making the region almost entirely responsible for the slippage in passenger demand growth.

For an example, Delta Air Lines has suspended three-time weekly B767 service from New York JFK to Amman, Jordan, effective 1 Jun 2011, and is continuing the suspension of six-time weekly New York-Cairo service. The route was initially suspended amid Egypts political crisis on 29 Jan

2011.While, Dubai Airport also felt the winds of change, as passenger numbers rose what was for it only a modest 5.2% in Feb 2011, to 3.8 million. In contrast, Singapore Changi Airport reported passenger numbers rose 9.1% year on year in Feb 2011 to 3.39 million. Passenger totals on Middle Eastern routes dropped by 33,036 in the month and the airport reported a 28,395 decline in passenger traffic to Africa, as traffic was affected by political unrest in Tunisia, Egypt and Bahrain.

The military has closed the pyramids to tourists following unrest in Cairo.

Delta Airlines suspended flights from the U.S. to Cairo.

Fuel Price

Usually, political unrest will also influence the fuel price. As refer to the first point which is political unrest in Middle East and North Africa (MENA) it cause oil prices spiked 4.3 percent. Oil price spike because on fears that the Suez Canal might be closed.

Roughly 3500 oil tankers a year plus thousands of other cargo ships travel through the canal on their way from the Red Sea to the Mediterranean. However, after the 1967 Arab-Israeli war, the canal was shut down for eight years. A closure today would add 6000 miles to trips as ships detour around Africa's Cape of Good Hope. Those trips would risk the threat of attack by Somali pirates.

The cost of fuel remains the most significant operations. The spreading unrest across the Middle East has resulted in steep increase in the price of crude oil which soared to a two year high and this had ad adverse effect on the price of jet fuel as refineries have increased heating oil output leaving less capacity to make the aviation fuel. cost of any carriers

Political unrest in the Middle East has sent oil over $100 per barrel that is significantly higher than the $84 per barrel that was the assumption in December 2011. Giovanni Bisignani, IATAs Director General

Fuel prices have a profound effect on the airline industry. Much of an airline's pricing and cost structure is based on fuel being available at a certain price. Some airlines have had to make drastic adjustments which include:-

Economic Recession
The rise in fuel prices combined with the political unrest in the Middle East affect the airlines as

there is a direct impact on the cost of operation. As a result, fuel cost increases have repeatedly triggered economic recessions, which in turn result in a substantial decline in demand for air travel and air cargo. The rise in the price of Jet fuel is prompting airlines to raise fares, tack on new fees, and to consider offering fewer flights or flying smaller planes. At this time, people travel less. A decrease in consumer spending means businesses make less money, hire fewer workers, decrease production, and drive costs up. So, when confidence is low, spending drops and, therefore, causes the economy to shrink. Beside that, due to this issue, it also has potential of affecting economic recovery in the United States in a negative manner. If gas costs more, then consumers have less money to spend on other items, creating a vicious cycle, according to Money Watch's editor at large, Jill Schlesinger. As oil and fuel prices rise, the cost of food rises, taking another large bite out of the budgets of Americans struggling to recover on unemployment or lower incomes. Every time gas prices rise by 10 cents per gallon, it costs American consumers an estimated$14 billion per year that they could be spending on other items. Rising fuel prices may impact travel. It shows that with gas prices predicted to inch upward in coming weeks and airlines already raising ticket prices, that long-awaited vacation could wind up costing a lot more. Thus, local families consider closer-to-home vacation sites.

"Prices will be an issue this year whether you are driving or flying, many families still plan to vacation, but their trips may be scaled back a bit."
-Celina AAA travel consultant, Jane Mustard-

Low Cost Carrier

Low cost carriers led to strong competition on the aviation market, also for the traditional airlines. But the full cost carriers can survive in parallel and do not loose too many clients. Low cost airlines are the need of the day.

In Malaysia, when AirAsia commenced operation at the end of 1996, it had introduced such low fares that had never been seen before in this part of the world. Everyone was excited, because air travelling was now more affordable to many more people. As we all know, AirAsia's slogan is "Now Everyone Can Fly. Indeed before the debut of AirAsia, in the late 90's air fare prices between Kuala Lumpur and Kota Kinabalu had reached around RM800.00 for a return ticket on MAS. However airAsia sold their seats for about RM400.00.

This greatly benefited the domestic travelers, as it also forced MAS to lower their prices for the domestic sector in order to compete with AirAsia. AirAsia brought much benefit not only by providing cheaper air fare to the locals, but also brought in tourists from other countries.MAS now have to compete with AirAsia. Competition is always healthy as market forces will determine prices. In order to survive in this industry, MAS has to come out with greatest strategies to ensure that they still able to become as a player in the airline industry and able to compete with their competitors.

The main concern we need to have about low cost carriers is the fact, that they turn the luxury service of fast travel with its implicit environmental damages into a day-to-day service for more

and more people. People use this service because they are attracted by the low price but they widely ignore the increasing price for the environment.

A natural


disaster is the consequence of a natural hazard such as hurricane, volcanic eruption, earthquake, landslide which moves from potential in to an active phase, and as a result affects human activities. Business is one such activity. Natural Disasters have direct negative impact on airlines. Based on the observation, after the Earthquake in Japan on March 2011, there are less Japanese tourists travelling internationally. When the country suffers a national crisis, Japanese people feel a sense of responsibility toward their country, and travel outside the country declines. This cultural characteristic, along with practical reasons for staying within the country, should, at least temporarily, reduce tourism around the world.

In addition, the airline is reducing its capacity in Japan by 15 to 20% through May by cutting the number of flights to Tokyos Narita International Airport which is a Delta hub and suspending service at the citys Haneda Airport. The devastating tsunami that flooded Japans Sendai Airport has left the worlds airline industry scrambling to reschedule flights. The suspension of rail services and temporary closing of Narita and Haneda airports in Tokyo left tens of thousands of travelers stranded or grounded without departures.

The deluge of water that submerged Sendai Airports runways and terminal will have the largest impact on Japan Airlines Corporation, All Nippon Airways Corporation Limited and other Asian carriers. Japan is bound to suffer tremendously with canceled travel bookings. At the same time,the U.S. State Department has issued an advisory for Americans not to travel to Japan unless absolutely necessary. While tour companies are canceling or rerouting tours, urging clients to book a different destination, rather than completely canceling.




Disease such as severe acute respiratory syndrome or mostly known as SARS or another serious disease such as H1N1 (Influenza A virus) have an adverse effect on air travel. These types of virus can create enough ripples of panic in passengers that travel plans are changed or canceled, and as a result, airlines suffer as people stop flying or stay closer to home. SARS and H1N1 are s proving to be examples of a virus that is steering passengers away from flying to certain regions of the world. These virus has led to thousands of canceled bookings as many companies and individuals are heeding the advice to not travel to certain parts of the world unless absolutely necessary. Air travel may or may not be one of the places that transmission of SARS or H1N1 occurs. These diseases could potentially be spread to passengers sitting in a nearby row. The earliest cases of SARS were found in Singapore,Hanoi, Hong Kong, Taiwan, Beijing, Shanghai, Toronto, and the Chinese province of Guangdong.

In recent days, flights have been quarantined and inspected when suspected cases of SARS or H1N1 are reported. Such events are quickly leading to changes in airline protocol when it comes to passengers who appear to be infected with SARS or H1N1. Here is an example of airlines affected due to rapid spread of SARS: In Singapore the government has medical teams available to check for SARS in passengers arriving on flights from China and Toronto.

Cathay Pacific is reducing its services within Asia by four percent. The temporary reduction in its flight schedule affects eight Asian destinations


Air Canada is permitting passengers who are scheduled to travel to Asia to rebook without change fees.

Here is advice and action regarding SARS/H1N1 and air travel: 1. Travellers: Travellers can protect themselves and others by following simple prevention practices such as washing their hands frequently, avoiding contact with sick persons and with live animals in markets. Those travelling to affected areas should be extra vigilant. WHO (World Health Organization) advises that people who are ill should delay travel plans. Returning travelers who become ill should contact their health care provider.

2. Airlines : Airlines must ensure a safe and healthy environment on board aircraft. For example, passengers should be reassured that modern aircraft are equipped with very advanced air filtration systems which ensure a high level of air quality despite the confined environment. Airline crew members are being asked to participate in the battle against SARS/H1N1 by watching for sick passengers and isolating them from other passengers if at all possible.



The air travel system remains one of the most high-profile targets for terrorists. Civil aviation security exists to prevent criminal activity on aircraft and in airports. Criminal activity includes acts such as hijacking, damaging or destroying aircraft and nearby areas with bombs, and assaulting passengers and aviation employees. Today, aviation security is high on the list of priorities of air travelers, the Federal Government, and the international air community.

During and after the 1990s, the FAA sponsored research on new equipment to detect bombs and weapons and made incremental improvements to aviation security that included efforts to upgrade the effectiveness of screening personnel at airports. In 1996, two accidental airline crashes focused attention on the danger of explosions aboard aircraft, including those caused by hazardous cargo. The FAA response included banning certain hazardous materials from passenger airplanes. The 1997 Federal appropriation to the FAA provided funds for more airport security personnel and for new security equipment.

The airline industry works similarly to any other for-profit industry where costs need to be minimized, revenue needs to grow, and debt must be financed as cheaply as possible. After the 11 September 2001 tragedy, the major airline carriers United, American, and US Airways have all filed for bankruptcy. The main driving factors behind these bankruptcies included cost of security, fear of litigation by the families of those who perished on 9/11, and a decrease in demand for airline services. The


airlines have been forced to raise costs in order to increase security personnel and other security upgrades along with the extra costs of protecting itself from lawsuits. In addition, this unprecedented attack resulted in an immediate and drastic heightening of air transportation security. In November 2001, the Aviation and Transportation Security Act gave the Federal Government direct responsibility for airport screening, which had previously been performed by the airlines and their contractors. Other provisions of the Act included the creation of a new Department of Transportation organization, the Transportation Security Agency, to oversee security in all modes of travel.



Airline industry touches nearly every persons life. Every day, airlines transport millions of people and goods quickly and easily around the globe. As a result, the health of regional, national and global economies is linked to this vital industry. Like other business, airline business no exception in facing the many obstacles to still remains in their industry. From the observation, there are many serious risks that threaten the airline business. Beside that, it also causes impacts to this business. Some bad and some are good to the airline business. In order to still remains in this industry, airline must work hard and have are business strategies to encounter the problem arise if one of the risks happen. As a conclusion, risks such as political unrest combined with increasing on fuel price make our economic situation become worse. People travel less, thus it impact to our tourism industry. In addition, airlines have to bear the loss of ticket cancelling. Beside that, after deregulation, there are lower entry barriers lower in a deregulated market for new airlines. Thus, hundreds of airlines start up .As a result, this has produced far greater competition than before deregulation in most markets, and average fares tend to drop 20% or more. This is a major constraint on profitability for established carriers, which tend to have a higher cost base. As a result, profitability in a deregulated market is uneven for most airlines. These forces have caused some major airlines to go out of business.

While natural disaster, disease and security are also the factors will influence airline business environment. The unexpected natural disaster and unprecedented attack become a nightmare for the parties involved. Thus it require airline to come out with immediate and drastic heightening of air transportation security, management and planning to overcome these matters.