Monday, October 22, 2012

US Airways and Government Aid

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Article Analysis 1

US Airways & Government Aid

Article Analysis-Week

Lana Daludado

ECO 60 Economics for Business 1

Group XBSMON10-ECO 60

Franny Chan

October 16, 00


What is economics?

Economics is the study of how we, as human beings, manage our needs and wants. We have unlimited wants and needs, but resources are not enough to satisfy our needs. We, therefore, have to make sacrifices once we make a decision on our choices (Colander, 001).

Role of Government

US Airways shows a profit due to government payment. Their first earnings report since they emerged from Chapter 11 bankruptcy protection in March, were in the second quarter because of a $14 million government aid, which helped offset operating losses and expenses (CBS Marketwatch, 00). The airline made some progress by reducing costs and changing its business. US Airways net profit was US$1-million, with revenue totaling $1.78 billion as overall traffic fell. Last year’s quarter, US Airways lost $48 million, with sales of $1.0 billion (CBS Marketwatch, 00). The airline ended the quarter with $ billion in total cash. According to the CEO, David Siegel, the

“airline made great strides against the backdrop of a challenging industry environment”(Swett, C. 00). The cost reductions attained during bankruptcy were valued at $188 million during the quarter. Due to the slow economy, the impact of the war with Iraq and low fares, the airline industry still stands in the worst misfortune. It may take several quarters to earn profitability. US Airways’ liquidity is everything, and is reducing its daily cash outflow considerably. When labor costs fell, the fuel costs rose by percent in the last year’s quarter.

After the /11 terrorist attacks, there has been a 1 percent decrease in (air) traffic. During the war in Iraq, domestic bookings fell 0 percent and international


bookings, 40 percent. A weak economy and terrorism fears have made an impact on international travel for big corporations in America. The Business Travel Coalition, an advocacy group based in Radnor, Pa, gave a survey to corporations. The surveys claim corporations are either banning international travel completely or are considering doing so (Benjamin, M., 00). According to US Airways executives, the third and fourth quarters will be “seasonally weaker.” Business travel, which is measured by tickets purchased seven days in advanced before departure, decreased 40 percent from the same quarter last year. Airlines depend on business travelers, by purchasing their tickets close to departure time (Reed, T., 00).

As a result from the U.S. government aid, the six major airlines federal tax refunds added to more than $1.6 billion this year, and these airlines will receive over half of $. billion in prorated refunds of federal security fees (Bond, D. 00). Since last year, there has been a 40 percent increase in fuel costs. US Airways flying capacity reduced to 1 percent, operating expenses fell more than 16 percent in the quarter, and US Airways unit costs decreased 11.4 percent (Reed, T., 00). By comparing last year to this year’s business travel revenue, prices have decreased, while revenue increased. When airfares dropped, the movement along the demand curve increased the quantity demanded for revenue. The demand for revenue has shifted to the right, a shift in the demand curve, increasing the revenue of business travel.

Analysis 4


Benjamin, M. (00, April 7). Bracing for Turbulence. U.S. News and World Report,

40(14), p. Retrieved October 1, 00, from EBSCOhost database.

Bond, D. (00, June 16). Liquid but Leveraged. Aviation Week & Space Technology,

158(4), 54,,1. Retrieved October 1, 00, from EBSCOhost database.

CBS Marketwatch, (00, July 8). US Airways posts profit with government help. The

America’s Intelligence Wire, pNA. Retrieved October 1, 00, from InfoTrac OneFile database.

Colander, D. (001). Macroeconomics (Rev. custom 4th Ed., University of Phoenix).

Boston McGraw-Hill Irwin.

Field, D. (00, June 1). Regional revolution goes up a gear. Flight International, 1.

Retrieved October 1, 00, from InfoTrac OneFile database.

Reed, T. (00, July 8). US Airways shows a profit due to government payment. Knight

Ridder/Tribune News Service, pK671. Retrieved October 1, 00, from InfoTrac OneFile database.

Swett, C. (00, July ). U.S. government aid creates ‘profit’. The America’s

Intelligence Wire, pNA. Retrieved October 1, 00, from Info

Trac OneFile database.

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