Challenges Associated with High Fixed Costs †Airlines Essay

What be the challenges associated with managing in a business with spicy indomitable addresss wish airways? To understand the challenges firms face with regard to high fixed be we must(prenominal) first have a basic understanding. A fixed cost is a r breakine cost the company incurs despite production, and changes in volume. It is a cost that must be paid routinely, but the amount of the spending may vary. Firms with high fixed cost must have spot understanding of what fixed costs exist that will be incurred, and how such(prenominal) revenue they need to generate in order to cover those costs and remain profitable. Companies operate in the airline industry face some(prenominal) opportunities in managing and developing strategies that take into account the following challenges rivalry, high-fixed costs, low capacity, and bell contestation. The high fixed costs faced by airline companies atomic number 18 the costs of planes, fuel, pilots, flight attendants, and additio nal staff for baggage and customer service.The airline industry is fiercely competitive and the ability to manage these costs and set up revenue is what makes a firm successful. In a growing commercialise the amount of entries and competitive offers can hinder the ability to remain viably profitable. In short, companies that operate with a high fixed cost business model, curiously companies that operate in cyclical end markets, get hit the hardest when on that point is a cyclical downturn or a push out of an expected spending pattern. (Alcatel-Lucent Turnaround or takeover? (2012). When the industry struggles, competition to meet revenue goals increase, and airline firms tend to either encounter square unexpected expenses to keep up or get caught in a price war situation.As far as competition in the airline industry, labor is a fixed-cost that can significantly impact a firm. With the level of competition in the aviation industry, and the amount of firms competing, it can be c hallenging to retain the skilled pilots, staff, and customer service employees. Pricing system is a challenge as well, in that, in order to be the most productive firm and belittle the effect of these high fixed-costs, airlines must maintain just enough equipment and enough route offerings to meet demand, and therefrom remain profitable.The difficulties experienced by high-fixed costs according to Paul McWilliams, companies with high fixed costs models have inherently low cost tractableness and are, therefore, very sensitive to fluctuations inrevenue. (Alcatel-Lucent Turnaround or takeover?) High-fixed costs allow the ability to produce high profit if the company runs at a high productivity and is in a growing market. If a company cannot produce revenue, it will detrimentally impact the firms ability to remain profitable. To sum up the challenges in terms operating in the airline industry, James Joyner says, Weve had commercial aviation for nearly a century now and nobody has ma naged to make a sustained go of it yet.As the business starts to look profitable, well inevitably see more entrants into the competition, madcap down price, and demands from labor for their fair share, driving up costs. Therefore, the ability to minimize the challenges faced in operating with high-fixed costs comes down to awareness of the fixed costs, the ability to remain competitive while operating in volatile industry, and a firms ability to generate revenue.Works CitedMcWilliams, Paul. (2012). Alcatel-Lucent Turnaround or takeover? Retrieved from http//money.msn.com/top-stocks/post.aspx?post=4bab7644-01a6-4b4e-b636-443995abad2bJoyner, James. Publisher, Airlines Make Profit Outside the Beltway Retrieved from http//www.outsidethebeltway.com/airlines-make-profit/