Buffett said “Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results. It’s been a death trap for investors.” (as cited in Quinn, 2015). The challenges of improving the airline operation while maintaining or improving profitability are becoming complex (Boutin, Jhunjhunwala, Molenaar, Ramos, & Bosch, 2017). Some major airlines worldwide have declared bankruptcy such as Delta, Japan Airlines, and United (“Four Reasons Why Airlines Are Always Struggling,” 2010). The airline industry is notoriously difficult business (Palepu, Healy, & Peek, 2007). Many airlines are facing with ongoing losses and insolvency. Airlines face four common issues: unprofitable airlines continue to fly, high fixed and variable costs, the impact of exogenous events, and the low quality of services (“Four Reasons Why Airlines Are Always Struggling,” 2010).

Firstly, many unprofitable airlines continue to operate the carrier regardless of regularly substantial losses. Closing down a large airline would result in the loss of jobs, inconvenience to travelers, the airline’s creditors’ losses, and the loss of national pride (“Four Reasons Why Airlines Are Always Struggling,” 2010). Secondly, the airline industry is a business with high fixed and variable cost (Maxon, 2008). The examples of the high cost relative to the airline companies are the cost of aircraft, fuel, labor forces, and security cost (“Four Reasons Why Airlines Are Always Struggling,” 2010). Thirdly, airlines are relatively vulnerable to external events such as political unrest, terrorism, and natural disasters which are beyond the direct control of the airline (Tolkin, 2010). These events excessively affect airline’s operations, financial performance, and passenger demand (“Four Reasons Why Airlines Are Always Struggling,” 2010). Lastly, a complaint of customers about poor services and bad reputation such as cramped seating, inconvenient schedules, and long queue at check-in due to security procedures could be posted publicly in social media which undoubtedly caused harm to the industry (“Four Reasons Why Airlines Are Always Struggling,” 2010).

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