Discuss about the effects to revenue of the company. Since fuel costs are the major operating...

Discuss about the effects to revenue of the company. Since fuel costs are the major operating costs of an airline, a marginal change in crude oil prices can significantly impact its operating expenses, and, in turn, its revenue.

Expert Solution

Fuel costs are a large operating expense for the airline industry, amounting to almost 20-25% of operating expenses of the companies. This is a huge percentage and therefore, even a slight change in the prices of the fuel heavily affects the revenue of the industry as a whole.

Not only fluctuating prices lead to high changes in the revenue as well as the growth of the companies, but it also affects the profit margins of the company and undermines future investments and the research and development programs.

However, to ensure more stability in the revenue, there are many steps taken by airline companies. For example, most of the airlines companies are in contracts with oil companies. these contracts are generally for five years and the prices of the oil are fixed in these contracts. This helps the companies in overcoming the challenges posed by the highly volatile oil market.

Similarly, the big companies in the airline industry are investing in oil refineries to manage the prices and the supply of oil efficiently. This helps them in becoming more efficient in managing the company even in the face of fluctuating oil prices and diminishing supply.

keosha answered 6 months ago

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