Personal & Financial Management
10/16/19
The excitement of boarding a plane and preparing yourself to fly is a feeling almost all of us have felt once before. However, travelers have been unable to travel by plane for the past 8 months efficiently, leading to massive determinants in revenue and growth plans for the Boeing company. This mass grounding occurred because of two recent plane crashes that sadly resulted in the deaths of over 300 people. Boeing was forced to recall the planes after these unfortunate events and they are still being inspected and fixed to this day. Over 370 max jets have been grounded and have been denied access by different airlines; these planes are extremely fuel efficient and help airlines grow substantially as they don’t have to spend as much on fuel. The loss of access has caused total profit for these airlines to drop significantly and has destroyed the airline economy as a whole.
Recently, American Airlines had to cancel 9,475 flights because of the grounding order which recently hit its pre-tax income of $140 million. The airline said they expect 140 cancellations a day until the planes return. This means that over 14,000 cancelations will occur in the 4th quarter and the beginning of January and the hole that these airlines have found themselves in will only get deeper. American Airlines unfortunately won’t be able to continue their growth plans and will need to start cutting funding to compensate for these cancellations. Airlines are also looking for compensation from Boeing to cover the loss of revenue, however, they have only received flimsy statements “It’s hard until we know when the airplane is really going to be back in service to ascertain what the damages are.” (American Airlines) They also were using the 737 Max a lot “American reports earnings on Oct. 24. The airline had 24 of the 737 Max jets in its fleet at the time of the grounding and has 76 more on order.” This means that the money they used to purchase these planes will not be made back efficiently and that this may put a huge dent into their stock prices. This can be related to our discussions about bonds and how investing in them will yield great profit but has a massive risk involved. Investors may also pull out of Boeing’s stock, as this loss of a huge asset has caused many people to question the company’s management and safety. However, even though Boeing stock did recede, it now is climbing again due to budget cuts and use of older airlines. While this has stopped the massive recession, Boeing’s financial state and management is still a huge mystery.Boeing paid a $4.9 billion after-tax charge in the second quarter of the grounding to cover their recent improvements to the 747 Max. These improvements include new software and the change of anti-stall systems, as they reportedly pushed the nose of the plane down during the crash. These improvements are still being reviewed by inspectors and the grounding has no timeline yet, meaning the grounding could last for more than a year.
Overall, the grounding has been a massive detriment to the airline revenue and flying may not be the greatest option anymore. Flights are being cancelled constantly and many airlines have to cut cost to make up for the revenue lost within their business.
Yeah. The airline economy is definitely dropping because of crashes and change of plans. The overwhelming part about there being too many flights canceled is the pre-tax income which is just overkill.
ReplyDeleteIt was surprising to read that over 300 people died in 2 plane crash occurinses. I didn't even know about that. Sense flying might not be the best option to get around anymore, how are people going to travel across the globe for things involving their job or just for a vacation? With the airline economy dropping because of these crashes, who knows if there are going to be planes in the future. Boeing company should definitely try to figure something out with their financial problems and should also be thinking about peoples safety, because traveling by plane has made a big impact on the world today.
ReplyDeleteI recently took a trip to Florida over the long weekend. It's sad to think that so many people weren't able to travel because of the lack of aircraft. Also, in economics, we learned that airlines receive subsidies from the government. The lack of profit airlines experience along with the grounding of so many Boeing 737s definitely devastates the airline companies. Obviously, this impacts the airline economy, but also our own lives at home. The government has to spend more to keep airlines running, and if the problem worsens, we could very much feel the effects. Additionally, people will be deterred from vacationing as getting airline tickets will become more expensive as there are less jets and seats available. Airfare has never been easy, but now things are getting much more complicated.
ReplyDeleteI had no idea that people are having a harder time traveling by airplanes because of the company Boeing. Airplanes I think are super dangerous and by this company being forced to ground planes and probably cancel a lot of flights after two crashes with many dying; it is very dangerous. I never knew that planes could be fuel efficient because I always think of planes needing a huge amount of gasoline to make it from place to place. Maybe planes are taking a turn and crashing because they are built a different way to save money on gas. The economy is probably being hurt a lot by no longer making a lot of money off of flights since many are being cancelled. American Airlines a huge airline that many recognize by name and it probably looks bad to people that they are being forced to cancel over 9,000 flights. Which then makes people more timid to fly on airplanes. By Boeing changing it up on manufacturing and designing it affected the economy by planes being forced to ground and many flights being cancelled.
ReplyDeleteI agree that grounding a plane can have unintended consequences on the economy. You mentioned that over 370 jets have been grounded and this has caused there to be a minor scarcity of flights available for travelers, and because of this scarcity, the airline economy has dropped significantly because they’re losing a lot of profits. With all of the profits they are losing, prices will probably rise because when there is scarcity, the demand is higher, which means they can charge more. Airfare is already very expensive so it’ll probably get more expensive if this continues.
ReplyDeleteI agree that the grounding a plane can really effect the econmoy in a bad way. It's also hard to see that so many people love to travel and won't be able too just because of the lack of aircrafts avalible to the public and traveling. The fact that they are lsoing profit too isn't good because as less people travel or are able to travel the less they make back. WIth that prices of tikcets could rise and casue even less people to travel as they cannot afford it.
ReplyDeleteTraveling by plane is extremely popular and efficient. The grounding of these planes not only effects the plane companies, it also effects peoples lives. Peoples jobs who require them to fly, jobs in and around the airport or planes and personal reasons. This is very interesting to hear considering I'm traveling via plane in a few weeks. While decreasing the profit of American Airlines and the Boeing company, this could increase the profits of other plane companies as everyone is taking they're travel needs and trust else where.
ReplyDeleteI agree that the grounding of these planes have taken a huge toll on the economy and the travelers. I was shocked that these horrible events took place and it is even worse to watch a company practically crash as there stocks surrounding the company would drop, the overall reputation of this company would fail and many more. I really hope Boeing can come back from these events and return as a future profound country in the airline industry.
ReplyDeleteIt's crazy to think that one small thing can have major effects. It's a good thing that they are grounding these plans and inspecting them so that no other crashes happen in the future. Getting the planes checked out and looked out to be repaired and fixed are the best options because nothing is better than being safe on a flight. This has resulted in a major hit in airliners economy and their profits because of these groundings, hopefully in the future they can come back out on top.
ReplyDeleteI do agree that it does have a huge effect on the airlines economy but what would be causing something so big as canceling a flight for a lot of airplanes, and why doesn’t the airline companies say it to the other airline companies so that their planes are still in check because grounding airplanes means that there is either something wrong or a natural world phenomenon is occurring stopping the plane from making it to the other airport, but whatever is causing the grounding must be pretty disclosed to only the airline companies and not to the general public because the general public especially online is very scary because people online have been able to figure out a lot of stuff that not a lot of people suited for this job can’t even figure out.
ReplyDeleteThe grounding of so many planes due to flight disaster brings to mind another mass grounding which happened on 9/11. This makes me wonder what the full economic impact of 9/11 was if two plane crashes, which killed three hundred people, almost caused a massive recession. The fact that if only two planes caused such a massive economical impact, what was the economy like after four planes were used as improvised weapons in an act of terror?
ReplyDeleteGrounding so many planes due to flight disaster is extremely unknown when you think about it. Who would have known that this happens? 9/11 must have really impacted what people did in the ecnomy with the planes and transporting in general. I agree that this has a huge effect on the economy.
ReplyDeleteThis event is a pure example of why you should diversity investments especially in stocks. Imagine investing everything into Boeing then this incident happens. You would lose tons of money and restates that the market is not predictable.
ReplyDeleteI find it interesting that something as small as little defects can have big effects. I think it’s good that these planes are being grounded because too many people have already lost their lives and there should be no reason for this to happen again. Getting these planes fixed is the best option because it would 100% be less expensive than making a new one. But this won’t change how badly these airplane companies are suffering due to all of these groundings.
ReplyDeleteI liked how you talked about how many people are expected to cancels there flights. And also how much it costs the airlines to do this type of thing.
ReplyDeleteAgastya Asthana,
ReplyDeleteBoeing is a great aircraft manufacturer but they shortcutted development of a new system that prevented airplanes from stalling. This system was created to compete with the new models Airbus had launched that year. Boeing essentially took their old planes and revamped them with this new system and newer design to stay in the competitive market. The new system however took information from a bunch of sensors and never really told the pilot it was detecting a stall to make the experience more seamless. The two accidents caused were because the system detected a stall mid-flight and forced the plane into a straight dive. This is the reason why Boeing still has to come back from that experience.