Mr Koon, thank you for your comment. I believe that for airline business to eventually become viable, the cost of producing aircrafts has to come down first. Currently, the aircraft manufacturing business is dominated by 2 giants, i.e. Boeing and Airbus, who enjoy high returns on equity (partly because they borrowed so much money!) and have no incentive to reduce production costs. Will there be a third force out to disrupt them (somebody like Elon Musk)? We shall wait and see, hopefully in my lifetime.
1. Sensitive customers Price sensitive, little brand loyalty, goes for lowest fare
2. High fixed cost Airline has high fixed cost from purchasing aircraft to maintenance & capex.
3. Perishable product An empty seat in the air is a lost in revenue. Airlines are inclined to cut price in order to fill the seat to cover their high fixed cost, which leads to price war.
3. Government/Politics Airline industry employ large workforce and most have union. When an airline decided to layoff it normally face a strong resistance from union and government. Slow down in layoff means industry is bloated with supply which fuel even more price war.
4. Low barrier of entry An aircraft has a life span of 20-30 years. It is relatively easy for a new company to lease a plane and begin operation. Any profitable route will soon be filled with competitors enough to erode profitability.
dont bs jtyeo!barrier to entry for airlines is high.high opex,capex and government regulations deter new entrants.dont remarks economic structure with your own thought compiled from internet.
2 stocks. China aviation oil listed in sgx, the largest fuel jet trader in Asia Pacific, and Sam engineering, which should benefit from Pratt and Whitney's expansion in Singapore.
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
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New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
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fung9815
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Posted by fung9815 > 2016-02-17 09:29 | Report Abuse
Mr Koon, thank you for your comment. I believe that for airline business to eventually become viable, the cost of producing aircrafts has to come down first. Currently, the aircraft manufacturing business is dominated by 2 giants, i.e. Boeing and Airbus, who enjoy high returns on equity (partly because they borrowed so much money!) and have no incentive to reduce production costs. Will there be a third force out to disrupt them (somebody like Elon Musk)? We shall wait and see, hopefully in my lifetime.