Question: Costvolumeprofit analysis within the commercial airline industry According to the International...

Flag Costvolumeprofit analysis within the commercial airline industry According to the International Air and Transport Association (IATA), airlines were expected to make around $6.12 profit from each passenger in 2019, which represents a decline from the 2018 projection of $6.85. Although carriers were expecting combined net profits of $28 billion, margins are being reduced by increasing costs in areas such as fuel and labor, coupled with intense competition among rival airlines.

According to Alexandre de Juniac, Director General and CEO of IATA, airlines will still turn a profit this year, but there is no easy money to be made. The economic reality is that in 2019, overall costs were expected to increase by 7.4 percent, thereby nullifying an expected 6.5 percent increase in revenues. IATA research revealed that carriers spent an estimated $70 per barrel on Brent fuel in 2019, representing a 27.5 percent increase on the price paid in 2017. Overall, the cost of jet fuel in 2019 was expected to account for 25 percent of total operating costs. Intense competition from low-cost carriers saw airfares fall in real terms by 2.1 percent in 2018 and were expected to remain flat in 2019, despite the number of passengers worldwide reaching 4.6 billion. Although planes are flying fuller than ever before, lower fares mean that a higher percentage of occupied seats is needed to break even.

Explain how decreasing margins affect the breakeven point and margin of safety for the airline industry?