Sample Essay on Air Transport Economics and Finance

  1. ATE: What are some of the factors influencing and fueling the growth we are currently experiencing in the air transportation industry? [5-points] The speed and convenience of air travel are more attractive based on the rising number of business activities. This idea is implemented by the progressive absorption of high technology aircrafts. High necessity of the cargo transport has a direct impact on the growth of the industry. In fact, this influences the growth in the world gross national product and cost reduction in airfares. The stimulations from the reduction in airline fares as costs decline increases trade and globalization of airline business.


  1. ATE: What are some of the direct and indirect economic impacts related to the air transportation industry? [5-points] Direct economic impact indicates economic activities that would be avoided if air transportation was unavailable. In this industry, airline transportation offers a direct economy growth to the local community and entire national economy. Examples of direct economic impacts include the salaries of airline personnel, fuel purchased, landing fees and similar expenditures. Indirect economic paybacks include the financial benefits constitutes major airline activities. Examples are hotels, restaurants, travel agencies and tourist attractions


  1. ATE: In the last five years, we have seen a consolidation of the airline industry in the U.S. What other changes would you predict we are going to see in the next five to ten years? In other words, make some predictions about the future. Make sure you support your predictions with some evidence. How will this impact the careers of students graduating from UD?  [10-points] The future air transportation system will involve much more automation both on the ground and in the air. Many aircraft model are advanced to perform different operations with little human support ones they are programmed. They can execute all guidance, navigation and control tasks. The knowledge and skills in these operations will be essential elements for students graduating from UD, attaining competitive edge in the airline market. Instead of incorporating machine and human in the tasks, the future designs will focus of automation mechanism and less human support, where their combined performance will be much better than either alone could achieve. Moreover, the upcoming air transportation system will be more integrated. For instance, the system optimization may hinder the performance and reliability of the air fleets unless there is coherent integration of the traffic controls in all the operation lines.


  1. ATE: Do you feel like the mergers of the three big legacy carriers (American, Delta and United) have been successful? Have they helped or hurt the airlines, the competition and consumers?  Make sure you use evidence or data to back your claims.  [10-points] The mergers involve carriers that do not serve overlapping markets, and some of the mergers enhance service by reducing transaction costs, apparently without reducing competition. For instance, Pan American was allowed to combine with Delta. At the same time, several proposed mergers were disapproved because the carrier’s routes were “parallel mergers” i.e., carriers serve too many overlapping routes. Notably, merging of the American legacy carriers (American, Delta and United) has instigated consumer concerns due to hub dominance and barriers to entry of the new airliners. This aspect has severely reduced competition, reducing the U.S. economy by 8%. Moreover, the incorporation of incongruent fleets has also been costly. Combining fleets increases costs associated with pilot training, maintenance, and spare part, resulting to drop in GDP from $16.9 million in 2013 to $16.3 million in 2014.


  1. ATE & AE: With the growth of LLCs, what impact have they had on the industry over the past five years. Answer this question from the perspective of the airlines AND the consumers.  What have the legacy carriers done in order to reduce the negative impact of LLCs?  [10-points] LLCs have been responsible in screening operations for passenger air transportation and intelligence information related to transportation security; managing and carrying out program and regulatory activities; discovering, preventing, and dealing with threats to transportation security. This contribution prevents the economy from suffering since if the economy suffers the volume of business travel is reduced or eliminated by many corporations, negatively impacting high-end fares. The coordination of the intermodal transportation between the merging companies has also influenced the transportation related responsibilities thus building confidence to the consumers.


  1. AE: Define shareholder wealth and explain how it is measured. [5-points] Shareholder wealth is the difference between the firm’s total value and the total capital that investors have committed to it. It is measured based on the market price of a firm’s common stock. Net value added (NVA) reflects expectations and future returns making them a forward looking indicator.


  1. AE: Explain the differences between debt and equity financing. [5-points] Debt financing refers to the sum of money that is advanced to the borrower. It creates a debtor-creditor connection between the participants. i.e., there is a authorized requirement on the part of the borrower to repay the debit and a correlative right on the part of the creditor to enforce payment. Money is invested on a more or less permanent basis is termed as equity financing. It normally earns dividends that are a return on the investment. There is, however, no legal requirement to repay the investor who, by making the investment, acquires a proprietary interest in the enterprise financed.


  1. AE: Explain the differences between money markets and capital markets.  [5-points] Money market is trading arena for securities with a time to maturity of one year or less at the time of issue while capital market is where assets with time to maturity of greater than one year at the time of issue are trading. The main components of capital market include equity shares, preference shares and debentures. The main components of trade in the money market are trade bills, business papers and records of deposit.


  1. AE: Explain the difference between primary markets and secondary markets?  [5-points] Primary market deals with issue of new capital while secondary market involves buying and selling of old securities.  Primary market provides funds directly to the corporate sector but secondary market does not flow any additional fund to the companies. Primary market lacks a pure geographical location but the secondary market has excellent natural infrastructure.