The which is needed for airplane fuel, airline

The more
OPEC cuts the supple of oil, which is needed for airplane fuel, airline companies
have to depend more and more on hedging. In an ideal case, the company has a
flexible policy regarding hedging that matches to tries to match the
fluctuations. If “OPEC” decides to produce more or increase supply then the
companies will be left with extra output. If the company is considering relying
on Shell instead of the bigger OPEC then this is will be an advantage because
this will be a natural hedge against any OPEC decision to cut or increase
production, providing the company with more stability in that field. However,
the choices are still narrow and changes affect the entire market1

One major
shift will be the use of certain flowers, or natural herbs (algae, flax,
coconut husks or even from used cooking-oil) to produce airplane fuel( Bio Fuel),
this is a huge advantage because the airplanes engines will not have to be
replaced, changed or even renewed because of the newly produced fuel. We are
talking about a fuel that is eco-friendly and “green” because the plants from
which they are derived absorb CO2 from the atmosphere as they grow and release
it when they burn, and this fuel is renewable unlike the classic fossil fuel.
Since the number of passengers and relatively the number of flights is likely
to double as we go into 2030, having such a replacement is good news in a
“Win-Win” situation.2

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One example
would be Airbus; they also say the technology, in which it and the Bavarian
government are investing more than 10 million euros ($11 million) between them.3

Secondly, aircrafts are considered the most important and highest expense in the airline industry. The main suppliers within the airline industry are the
manufacturers of aircrafts like Airbus and Boeing, Two major
determinants in terms of aircrafts and their manufacturers are sale or lease
basis, which means that it mostly depends on the companies and whether they
want to have the aircrafts as assets on their balance sheet or would prefer a
higher ROA by applying the lease basis. Moreover, at
the current stage, aircrafts for long distance travel cannot be substituted by
any other product, which strengthens the bargaining power of the suppliers even
more. In this
industry, the inputs are extremely standardized allowing for only minor changer.
Airline companies only seem to differentiate with amenities. The planes are
very similar. Bulky aircraft purchases are also very common.4

Boeing
and Airbus respectively have been the two major suppliers of aircrafts to the airlines
over the world. For the past few years, we have seen a huge increase in the
production which resulted in delivering aircrafts at an above-average pace
without defaulting a single time, even though the commercial aviation industry
was slowing down in terms of production due to effects of the overall global
economic conditions. The total deliveries in 2009 were close to 1000, with a

1 (SIA extends fuel hedging as Opec cuts sway crude
oil, 2017)

2 (Plant-Powered planes show promise, 2014)

(TheHedgingEfficiencyofCrudeOilMarkets,
1995)

2 (From green slime to jet fuel: algae offers airlines
a cleaner future, 2016)

   (Flying on
Flowers, 2017)

4(5 Biggest Aircraft Manufacuring Companies, 2016)

 

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