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Travelling by planes has become part of our life and it has a huge impact on the economy of the country and the business. Airplane travel is one of the most common forms of transportation to get to overseas destinations, and it is also widely being used domestically. We were all being able to witness negative impacts from the global recession as it hit many countries in the late 20th century and resulted in increasing oil prices which became a disaster for every industry. Clearly, the airline industry was not immune. Industry passenger revenues had declined nearly 20% in the first four months of 2009 compared to the same period in 2008. To increase the problems faced by the aviation industry, spreading of H1N1 which resulted a decrease in air travel and rising jet fuels which were 20% higher than 2007 had created difficult business environment. Due to these circumstances, airlines in the UAE suffered partial loss and changed their travelling pattern as well as their service to their customers to minimise the effect. Many professionals and experts around the world believe that a true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters. The various airlines in UAE are adopting different marketing strategies to attract customers all over the world. They are slashing the prices of airline tickets. But the worldwide economic slowdown doesn't allow the people to spend more money on traveling. People have become more careful in spending their money as the global economic slowdown has disturbed their economic equations as well. This essay will first demonstrate the problems faced by the airline industry in UAE and to which extent they can slash the ticket pricing and the services down before they go on a loss as well as what measures they undertook before, during and after the global recession to have a smooth and steady business. Every person is not capable to fulfil his desire of travelling in this situation of worldwide recession, and in this globally slowdown not only the hike in the salary of employees is impossible for the management but on the other hand the employee has a fear of sacking the job which we were able to see in UAE as most of the expatriates returned home after losing their jobs. In the coming next years, the situation will be more tough for the airline industry if global economic slowdown starts all over again. There may be several factors for this condition. The global recession and the hike in air fuel are considered the major factors. The worldwide economic slowdown as well as the increasing price of fuel played an important role in achieving this situation in the airline industry, so therefore careful planning and smart acting will be the solution to these problems.
The important data regarding this topic were gathered from various sources such as journals, articles, internet database as well as E-books. Most of the data gathered regarding recession and its effect for this research project were secondary research data which were easily available in the library as well as online. The research was started 2 months in prior to the submission date in order to find the data step by step.
Primary research was used as it was required to obtain a clear analytical data on how the passenger's air travel pattern changed due to recession.
These findings which were carried out in an orderly manner led me to produce a successful research paper at the end of my course.
3.1 Background and history of recession.
A recession can occur due to many reasons and it's not always initiated by one specific reason or aspect. The reasons that could initiate recession can be from internal problems in the country to external affairs around the world, these includes wars in the country or between two countries, internal conflicts, political instability for a long time or market crashes in the other parts of the world which could affect the economy of certain countries. There are many opinions on the formation of recession put together by many analysts around the world, where some say's that we are moving forward to a recession, whereas others think that we have already moved out of a recession. Therefore no one really knows when we can expect a recession but it can be predicted to a certain level and the recession that took place in the late 20th century was no different.
According to NBER which is also known as National Bureau of economic research, we have witnessed 10 recessions till date, starting from 1945. Since the first recession till 2007, the average recession lasted 10 months. Whereas, shortest recession till date lasted 6 months, and this took place from January till July 1980. The recession in the late 20th century might not be the longest of them all but it certainly did make enough damage to be put up as one of the worst recession to hit our daily life proceedings.
Recession has hit US more often than any other countries, but recession not only continued to outbreak in America but it did play a role in the rest of the world as well proving it to be hard to get away with. Even the most powerful countries in today's world have had trouble with recession, such as China, Germany, Japan and UK. It is believed now by the economists that Germany could well be in to face the biggest recession in the country's history in the coming years. Recession in japan has also played a huge role in their country's economy as well as their history. In the early twentieth century recession hit America due to several reasons affecting many other countries as well as many industries which includes the industry which we r mainly focused on in this research paper. One of the main aspects which initiated this recession was the attacks that took place on September the 11th on the world trade center in New York City. This attack led to an economy downfall which was face by the Americans.
In the late twentieth century America was once again the main victim of recession which was the biggest one till date and spread across the world influencing firms to cut down on job opportunities to which the young graduates are vulnerable to and as well as cut down in salaries which could have a negative impacts on the stability of individuals and families. As per bureau of labor statistics, due to the loss of jobs and less job opportunities the median worker due to recession in the late twentieth century in US had spent 20 weeks (Fig. 1) out of work. One of the reasons for this economy fall down was the collapse of the housing market and it also coupled with bank collapses in Europe and in US. In this research paper we will be looking at how the aviation industry suffered and overcame the hurdles during this phase
3.3 The effect on Air travel, Aircrafts due to recession in 2009
3.3.1 In Middle east
Aviation industry in the Middle East is one of the most evolving industries presently which enables and allows the Middle East to expand beyond the most well-known sectors such as the oil and gas sector. The aviation sector in Middle East during recession has done better in comparison to other regions and due to this the tourism and financial sectors have improved rapidly. Analysis from Frost & Sullivan finds that the aviation market in the Middle East region generated 460,000 jobs and 17.5bn in the year 2008. It is estimated that for every $100 spent on air transport, the regional economy benefits by $325.
“There is a high positive correlation between air travel and the level of economic activity in the region since GDP would relate to consumer spending and hence positively impact the demand for air services,” states Frost & Sullivan. “Thus, a GDP growth in the Middle east will ensure that the region's aerospace sector would outpace the rest of the world.”
Middle East is located in the centre of the world with equidistant from the North America and the Asia Pacific, and this has proven to be a huge beneficial factor for Middle East alone in these circumstances. Due to this geographical location of Middle East, airports within this region attracts enormous portion of transit traffic throughout the year and this was the case during the recession as well. Therefore Middle East aviation industry was less affected financially and the recession played a small role in this industry. Due to this geographical position of Middle East, it not only benefits from transit traffic but it also has its own wealth in oil industry. Having oil in their backyard was one of the most important factors that reduced the effect of recession in this region. This also enabled this region to be the re fuelling base for most of the airlines around the world. Middle East benefited from this as they earned money from oil during recession where the oil prices were rocketing.
Middle East's aviation industry has been vulnerable for the recessions throughout its existence in contrast to other aviation industries. This is mainly due to the financial support given by the sheiks in the region and due to good leadership in management at these circumstances. Although recession did not have a huge impact on the Middle East region in contrast to other regions, airlines in this region were forced to amend their aircrafts in order to increase the profits. Qatar airlines reduced the number of 1st class and business class seats in order to provide more economic class seats as passengers during recession preferred economic seats due to critical financial situations, and especially when the jobs were lost in other sectors in the Middle East regions, most of the expatriate workers went back to their own country.
These factors have resulted in Middle East being one of the few regions to successfully penetrate through the recession phase without losing its airlines or selling them to different companies in order to generate money to compensate for the loss created by the recession.
3.3.2 In UAE
Success of the UAE aviation industry has been one of the main impact on the world's aviation industry as it has gained the spotlight over the other industries in the global scale. Due to this success airlines such as Emirates, Etihad, and Air Arabia have come through to be one of the most favoured airlines.
Emirates in 2010 announced it record profit levels and Etihad is expected breakeven in 2011 as predicted before shows that the recession has left few marks behind. Whereas Dubai international airport and Abu Dhabi international airport has seen a rise in the passenger and cargo volumes by double digit, it is evident that United Arab Emirates has had very few setbacks in comparison with other international airlines and airports.
The inauguration of the Al Maktoum international airport in Dubai had sent out a message to other aviation industries that global recession did not play a huge role in the UAE's dream to become one of the most successful as well as the central hub of air travel. Meanwhile other aviation industries have tightened their purse outgoing, the United Arab Emirates has moved forward, and the outcome have shown that the strategy behind this success is paying rich dividends.
United Arab Emirates is part of the middle east and as I have mentioned earlier, one of the reason why Middle East did not suffer the global recession was due to its geographical position and research have shown that this is one of the reason for United Arab Emirates to do well during recession. Airports in UAE are built in way that, super long haul aircrafts fleets around the world with maximum of one stop with the connection point being one of the airports in UAE, this had eventually made sure that during recession passengers as well as aircrafts have gone past through this country and this has helped the economy to a certain level.
Other factors which has helped to this cause are the airlines in UAE making changes to their travelling pattern during recession in order to be most beneficial than their counterparts, for example emirates cut down on their flights to long haul holiday destinations and increased the flights to the nearby holiday destinations in order to make sure that with few passengers going for long haul holidays it was profitable for the airlines to send few flights to these long haul destination.
Although these factors have lead United Arab Emirates to shelter from global recession to a great extent, in contrast to other most successful airlines originated from Europe and US, recession did play its small part on the aviation industry as the UAE aviation market which was at 1.9% growth in 2008 decreased to 15.3% due to decrease in consumer confidence and purchasing power.
The Global recession was a huge impact in the other industries in UAE and among the other Middle East countries, although the aviation industry overcame the hurdles of recession with few problems such as let down in tourism sector which is correlated to the aviation industry, It is fair to say that aviation industry in UAE as a whole reacted and planned to the recession accordingly, therefore lessening the economy crisis on the shoulders of its passengers and customers. Along with this one of the main reasons aviation industry had faced less problems due to the recession was due to enormous support given by the government to the continuation of growth of this industry.
3.3 Measurements Airlines took to counterattack recession in UAE in 2009
3.3.1 Etihad Airways
Etihad Airways is among one of the developing airline industry in the world, it was originated and started its passenger services in 2003, since then recession has been its biggest test till date. While recession was affecting the whole world, Etihad airways acted upon it like its counterpart Emirates Airlines proving the world that nothing could come in its way of developing and breaking even in 2012. Etihad airways took precautions to counterattack the recession in later 2008 and in 2009.
Etihad airways reduced its business class and first class seats to US as well as Canada by 43% proving it to be efficient at the end of the recession. Reduction in the Luxury seats meant that there would be more number of economic seats which the passengers favored due to economic crisis. This also created in less amount of payment by the airways for the catering for the first class as well as business class. Having more economic class seats and less luxury seats meant that most number of seats were occupied and more amount of passengers were flown out to a destination in the same aircraft.
3.3.2 Emirates Airlines
Emirates airlines suffered a profit loss of 72% during the recession phase, where its profit was 1.49 billion Dhs compared to 5.3 billion Dhs profit in the previous year. Emirates airlines took all the measures to reduce the effect of recession on its airlines and therefore it was affected less in comparison to other airlines around the world.
Emirates Airlines took a measure to reduce the effect of recession by stop using two Airbus A380 double decker's which goes on a route from Dubai to New York daily as many of the passengers stopped travelling in this route due to high price fare tickets since it's a long haul flight and due to economic reasons. Instead Emirates Airlines used two Airbus A380 to Toronto and Bangkok from Dubai as the demand for this route during recession was higher. Emirates then used Boeing 777 for the Dubai - New York route which is a smaller in capacity than the Airbus A380 double decker, in this case the strategy used by the emirates was to carry larger number of passengers with larger capacity planes to a destination as this leads to more people being flown out to a destination at the same time without using much of resources thus leading to a beneficial trip for the airlines.
3.4 How the 2009 recession affected the passengers In UAE.
Results from the primary research carried out on sample of student's families in Emirates Aviation College as well as randomly selected families outside in no order has proved that the 2009 recession had an effect on the travelling patterns of the individuals as well as the families. Families with different nationalities were taken into consideration to obtain the most accurate results. First, salary of the head of the family was taken into consideration and secondly this was followed by the length of the flight hours of their journey was asked n in order to analyze whether it was a long haul or a short haul flight. Thirdly, the airlines used for the air travel was noted in order analyze whether it was a budget airlines or commercial airlines. After analyzing the results of the questionnaires it was proved that, Individual earning less than 30,000Dhs per month preferred staying in Dubai as the economy crisis played its part on them. Individuals earning more than 40,000Dhs per month were keen on travelling on short haul flights, although these visits were mostly to meet family members and not for enjoyment purpose. Very few selected samples travelled on long haul flights and these were mostly on business trips as their organizations and business paid for the ticket fair. In conclusion to this primary research it can be proven that recession had a huge impact on the passengers using air travel.
Air travel 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. We are all seeing negative impacts from the global recession and rising oil prices not only in the news, but also in our communities and personal finances. Clearly, the airline industry is not immune. Industry passenger revenues have declined nearly 20% in the first four months of the year compared to the same period in 2008. That trend is expected to continue in the near term. On top of this, cost pressures from rising jet fuel prices up by more than 20% since the start of the year - coupled with softer travel demand due to the spread of the H1N1 virus, have created a difficult business environment. These forces that are affecting the industry are creating significant headwinds for the airlines in UAE. Declining revenues will overtake the more than $6 billion in total benefits we expected this year from lower year-over-year fuel prices, merger collaborations and capacity reductions.
Upon conducting research it shows that airlines have had to recognize the need for radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability: Airlines' profits were $5bn in 2008, less than 2% of total revenues. This is below the level IATA believes is necessary for airlines to reduce their debt, build reserves and sustain investment levels. In addition, many airlines remain unprofitable.
Thus to meet the requirements of their increasingly discerning customers, some airlines are having to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers.
One the basis of overall evaluation and analysis of the researched data, it can be concluded that the effect of recession on the aviation industry has been greater before than in 2009 due to improvements in the business strategy as well as careful planning. History shows us that unemployment normally peaks right after a recession has ended and if we look at what is going on around us it stands to reason that now is in fact not too dissimilar to previous recessions that affected the aviation industry.
Industry revenues fell from $536 billion in 2008 to $500 billion in 2009. By contrast, revenues in 2002 fell by just $1 billion, to $306 billion, from the previous year. "This is a global recession that we've never had in aviation. This shows the impact that was caused by the recession in 2009 and the capacity of it ranging from high oil prices, less job opportunities and less passengers travelling in the air lines.
Upon conducting the secondary research on the travelling patterns of the families during 2009 recession, it is notable that many of the families that I had interviewed, who were financially strong did not travel by air for holidays as they did in the previous years. Interview and research done on the moderate earning family showed that it was impossible and out of the box to even think of going for holidays by air domestically or internationally.
Therefor in conclusion it can be said that, it is now evidential that when recession hits the aviation industry, it's strong enough to hit other sectors as well and therefore affecting the passengers who uses the air travel and bringing instability to the aviation industry as a whole.