The International Rise in Fuel Costs: Companies Challenges

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Discussion
Forecasting
In a work place
Conclusion
References

Introduction

There are various factors that can make an organization to record losses. Some of these factors may be beyond their control, while others may be due to mismanagement. Natural disasters like hurricanes, earthquakes are known to cause much damage to business organizations. Other losses may arise from fluctuating markets which may force a company to experience hardships resulting to losses.

This paper is going to evaluate the hardships that some companies experienced and how they were able to control the situation arising from sudden rise in fuel prices. It will discuss the importance of having qualified personnel running organizations as they make analytical decisions in an endeavor to control losses emanating from sharp price rise of a volatile product (Oil).

Discussion

The international rise in fuel costs drove many companies to big losses around the world. The most affected companies were the airline companies which seemed to have been hardest hit. This was because; when the oil price skyrocketed, expenditure superseded the income. Many were left with the choice of raising fares, albeit risking losing customers, in an endeavor to salvage the situation. These soaring fuel costs contributed to more losses than had been expected at the US Airways (Trottman & Carey, 2000).

The situation was also the same at American West. In spite of all these negative financial results experienced by many companies, there were other companies that survived the financial turmoil. An example is American Airlines which registered a strong profit which emanated from raising fares and increased demand on their services. There was a great increase in the number of air passengers who contributed to alleviating the situation. Airline companies, such as American Airlines decided to raise their fares so as to counter the surging oil prices.

Through the raising of fares, American Airlines were able to save about $ 150 million in a quarter year on the cost of fuel (Trottman & Carey, 2000). This was made possible by the large number of passengers who decided to avoid United Airlines, a competitor, as it was having labor disputes. These labor disputes that confronted United Airlines resulted to flight delays and cancellation of flights. As a result, many customers who previously used United Airlines decided to seek the services of American Airlines. This influx of passengers to American Airlines brought much money which countered for the rise in fuel costs. This made it possible for the company to experience good profits in such a hard time. This shows that woes in a business organization can easily result to losses.

United Airlines suffered great losses after losing customers to competitors because of their internal woes (Trottman & Carey, 2000). It is, therefore, necessary to avoid internal wrangles in a business organization so as to reduce any losses that may emanate from such a scenario. From the reports in the case, it was evident that other companies could predict how the direction their businesses will take. The companies could evaluate the situation and forecast on future trends that the companies would take. Forecasting is paramount in businesses as it assists in preparing for future eventualities, while giving time to make necessary plans.

The growth experienced by American Airlines was not to last long as the influx of passengers diminished. The price of oil on the other hand did not reduce, and this translated to a forecasted loss. Expenditure surpassed the income resulting to unexpected financial loss as companies dug deeper to get more money to conduct business. Despite all the inflations, some companies were planning on expansion by buying off other companies. United Airlines were planning to buy off US Air (Trottman & Carey, 2000).

This was only possible through proper planning which accrued from reduced expenditure. Reduced expenditure allowed for companies to save more for other uses. This comes from proper budgeting where expenditure has to be kept in control so as not to surpass the total income. This would keep a company within the targeted profit margins.

Forecasting

There are some findings emanating from this scenario: One is on the importance of undertaking a forecast so as to evaluate the performance of an organization. Forecasting helps as it enlightens on the way forward and companies can make decisions that will not hurt the budget. Since companies operate within a formulated budget, forecasting helps in assessing the trend so as to have an overview of the path the business is taking. This helps in assessing a situation and rectifying it before the effects exceed all that had been planned for in a budget. It is always important to formulate a budget and stick to it lest there be less money to meet all the desired needs.

Forecasting has its merits, such as; assists a business organization to predict the future (Wilson & Keating, 2009). This may not necessarily provide with an exact picture of the future, but it gives the business management a general idea of what to expect based on the happenings at the time of forecasting. This gives the management time to prepare and take necessary measures. Using the case of airline companies based in the journal, some managers could predict of greater losses based on the time taken for the oil prices to remain high. This gives companies time to evaluate on ways to minimize expenditure so as to reduce chances of undergoing terrible losses, which if not managed properly, a company may easily result to bankruptcy.

Forecasting also helps an organization make decisions that help it avoid similar predicaments in the future. This is made possible as the organization has already learnt from past situations. This goes a long way to assist a company be on the lookout for new market trends, as well as, competition. Competition trends from other organizations offering the same products or services can be used to predict on how the future will be based on competition analysis. This can be used to prepare to withstand competition.

Proper forecasting also allows organizations save on staffing costs. By predicting on the future of the business, business managers get a glimpse of how much product will be in demand and this helps in evaluating the number of employees needed to meet the demand (Wilson & Keating, 2009). Another merit of forecasting in business assists in reducing inventory costs. This helps in reducing the risk of incurring obsolescence expenses, or the risk of having to deal with excess discount products as a result of having a large surplus.

Another new learning that has occurred is that for a company to make turnarounds in business, the management should possess critical analysis principles. These principles should be used to make drastic decisions for the better of an organization. Some of the drastic measures may be a reduction in the number of employees so as to cut on cost. Such a drastic decision requires critical analyzing so as to safe the face of an organization. Oil business is very volatile as changes in its price can rise suddenly and remain exorbitantly high. It is therefore paramount to be prepared for any eventuality while dealing in oil and be able to make drastic decisions that will save an organization from excess loss.

Operating a company on losses results to other chaos, such as; strikes due to inability to meet all needs. Some of these needs are buying equipment, repair, and paying of staff, among others. It would be challenging paying workers all their dues if a company is operating at a loss (Bogsnes, 2008). Workers may strike as a result which would complicate matters further resulting to additional losses. Workers at United Airlines went for a strike as the airline could not meet their needs which resulted to big losses to the company. The labor woes between the airline and its workers resulted to massive flight delays. These delays translated to losses as the company grounded most of its carriers. As a result, productivity reduced translating to reduced efficiency. For this reason, it is prudent to be watchful so as to avoid losses at all costs.

Importance of critical thinking: It emerged that for a business to withstand all the challenges in the market, there has to be personnel prepared to make critical analysis so as to make critical decisions. When American Airline was engulfed with a problem of high oil price, the management saw the need of evaluating the options available so as to remain relevant in business, or risk losing in business opportunities.

The management had to make drastic decisions which involved hiking air fares, and in the process risking to lose passengers. This was a critical decision in order to suppress the pressure gained from a rise in oil price. Bearing in mind that aero planes require a huge amount of fuel to run, then there was urgent need to counter on the high fuel price by raising fare. This would raise money to pay for the expensive fuel while maintaining manageable profits in the process.

For one to make a critical decision, the problem should be well known. It is paramount for one to have thorough knowledge of the market trend so as to be in a good position to make critical decisions. When making critical thinking, it should be essential to recognize all assumptions. In addition to this, it is paramount to have an evaluation of all possible arguments, as well as, drawing conclusions. Recognizing all assumptions means the ability to separate facts from all available opinions.

There is need to analyze information accurately, so as, to evaluate arguments effectively. This will assist in drawing right conclusions. American Airlines management appeared to have utilized the three steps so as to conclude on raising their fare. The airline’s decision bore fruit as the company registered profits of $ 1.96 per share, which was beyond what it had registered previously; $ 1.78 per share (Trottman & Carey, 2000). If the airline had not raised its fares, it would have spent all its money paying for the purchased oil. It was a risky move worth taking. In this line, another factor emerges of risk taking.

It is evident that in business, one may be forced to engage in healthy risk taking. This is important as it helps in formulating an alternative plan if the original plan fails. Another lesson learned from the article is that increasing the demand of a product and a rise in prices goes a long way in alleviating losses. American Airlines registered huge profits as a result of raising their fares while increasing demand (Trottman & Carey, 2000). This made the airline avoid the impact of high oil prices. The demand guaranteed that customers would be available to use the airlines services while paying for them using the new prices. That gave the company a lee way to curb the big losses that could have been brought by the high oil prices.

Inefficiency also appeared to contribute to the losses experienced by the airline companies. Companies like United Airlines and Phoenix that were having labor disputes, as well as, operational disputes led to flight delays (Trottman & Carey, 2000). These flight delays hurt passengers who resulted to change of carriers. The delayed passengers had been subjected to time losses which resulted to inefficiency.

The companies were not efficient in running their businesses, hence losing their prestigious customers to their competitors (Trottman & Carey, 2000). It is therefore important to ensure a business organization is free from wrangles which could result to losses in the future. Employees should be treated exceptionally well, as they promote business continuity by injecting their energy into their respective workplaces. This translates to efficiency and productivity.

In a work place

There are some methods that can be utilized in a work place, for example; ensuring efficiency is maintained in the workplace. This is important as efficiency promotes productivity. Inefficient workers translate to unproductive workers. It is therefore important to ensure workers are treated well so as to avoid wrangles that could result to losses. It is also indispensable to formulate budgets and stick to them when implementing. This is because; there are chances of using money on what was not allocated and this translates to a loss. It is easy to use money in an organization for the purpose it was not intended. This would mean more expenditure than income, which is not healthy for business.

In a work place, it should be essential to take intelligent risks that could easily transform an organization. This would go a long way in promoting critical thinking and decision making in an organization.

Conclusion

In conclusion, it is important to formulate a budget and stick to it in its implementation. This would alleviate chances of using more than had been allocated which could result to losses. There are also immense advantages to be reaped from forecasting. When forecasting is done, it is easy to note the trend the company is undertaking, and make necessary amendments. Forecasting gives a glimpse of the business behavior in the future, and for this reason, companies can be prepared to tackle the challenges by assessing the future from the current situation. It has also emerged that workers contribute to the overall productivity of an organization.

References

Bogsnes, B. (2008). Implementing Beyond Budgeting: Unlocking the Performance Potential. Hoboken, NJ: John Wiley and Sons.

Trottman, M. & Carey, S. (2000). American’s net soars, but high oil prices sting U.S. Airways. The Wall Street Journal, pp. B4.

Wilson, E. O., & Keating, G. (2009). Business Forecasting. New York, NY: McGraw-Hill Education.

Click Here To Order Now!