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Assignment 2: Final Report Due Week 9, worth 175 points This assignment is aligned to this course outcome: Apply macroeconomic concepts to current and personal economic events and decisions. In addition to writing about macroeconomic concepts, it’s equally important to be able to convey your understanding of these concepts by communicating them to others. In the workplace you might do this by writing briefs (like you did for Assignment 1), creating presentations, or writing reports for your manager or team. An example final report and optional template are provided below. For this Final Report assignment, you can build off your previous economic brief and selected industry from Assignment 1, or you can select another industry such as Finance and Insurance, Health Care, or Manufacturing, and examine one of the macroeconomic indicators or policies below: GDP growth Unemployment rates Inflation rates Interest rates Imports and exports Government fiscal policy and issues related to taxation, government spending, and budget deficits FED (central bank) monetary policy and issues related to the FED’s mission to stabilize the economy Example Final Report, Assignment 2 Template, Strayer Writing Standards Review an example final report. Use the optional template to help you get started. Review the Strayer Writing Standards. (See Instructions below.) Instructions Use Microsoft Word to prepare a Final Report that is a minimum of two to three (2-3) pages long in which you: 1. Introduce your selected industry with a brief one-paragraph introduction. Refer to the NAICS (North American Industry Classification System) to review the details about your industry. 2. Assess your selected industry’s relative size and growth rate in the economy. These macroeconomic resources will help you find the size and growth rate of your industry in the U.S. economy and/or relative to GDP: • Real GDP – Select Section 1, then table 1.1.6 (select MODIFY to change the year range and frequency). Data is from Bureau of Economic Analysis (bea.gov). • % Change in Real GDP – Select Section 1, then table 1.1.1 (select MODIFY to change the year range and frequency). Data is from Bureau of Economic Analysis (bea.gov). • GDP by Industry – Steps: Select “Interactive Data.”2. Select “Industry Data Tables.”3. Select “Begin Using the Data.”4. Select “Gross Output by Industry.”5. Select “Real Gross Output by Industry (A) (Q).”6. Select “Quarterly” or “Annual.”7. Select “Next Step.” Data is from Bureau of Economic Analysis (bea.gov). • % Change in GDP by Industry – Steps: Select “Interactive Data.”2. Select “Industry Data Tables.”3. Select “Begin Using the Data.”4. Select “Gross Output by Industry.”5. Select “Percent Changes in Chain-Type Quantity Indexes for Gross Output by Industry (A) (Q).”6. Select “Quarterly” or “Annual.”7. Select “Next Step.” Data is from Bureau of Economic Analysis (bea.gov). 3. Identify one newsworthy macroeconomic indicator or policy (e.g., GDP, unemployment, inflation rates, interest rates, government taxation and spending decisions, and/or FED decisions) that the industry should monitor and explain why it’s important and how it might impact your selected industry. These resources are available to help you measure and track macroeconomic indicators and outcomes of macroeconomic policies.You’ll use one or more depending on the macroeconomic indicator selected. • Unemployment rates – Data is from Bureau of Labor Statistics (bls.gov). • Inflation rates as measured by the Consumer Price Index (CPI). Data is from Bureau of Labor Statistics (bls.gov). • % Change in Real Exports and Imports – Select Section 4, then table 4.2.1. (Select MODIFY to change the year range and frequency.)Data is from Bureau of Economic Analysis (bea.gov). • Government receipts, expenditures, and savings – Select Section 3, then table 3.1 for total government and table for 3.2 for federal government. (Select MODIFY to change the year range and frequency.) Data is from the Bureau of Economic Analysis (bea.gov). • FED Funds Interest Rates. Data is from Trading Economics (tradingeconomics.com). Describe a recent trend in the macroeconomic indicator or policy. Include a graph, chart, or table that illustrates the observed trend. Summarize how you think this industry will perform in the future. Provide support for your rationale. 6. This course requires use of Strayer Writing Standards (SWS). The format is different compared to other Strayer University courses. Please take a moment to review the SWS documentation for details. (Note: You’ll be prompted to enter your Blackboard login credentials to view these standards.) Your brief should include a cover page. Your brief should be a minimum of two to three (2-3) pages in length (not including the cover page), double-spaced, 12-point font. Your report should include a minimum of two (2) references/citations in the text.
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1 Assignment 2: Final Report Example Paper Strayer University ECO100 Dr. Jean Fonkoua September 8, 2018 2 Final Report: Airline Industry Introduction The US airline industry is on a winning streak following seventeen consecutive productive quarters. E ven with its most significant operational costs, labor, and fuel spikes, persistent demand on increasing capacity, the airline industry remains in the black. This paper will focus on critical areas such as the assessment of favorable growth rat es up throu gh 2036, government taxation and its impact and trends on the airline industries. All signs point to growing demand for global connectivity. Alexandre de Juniac, Director General, and CEO of the International Air Transport Association (IATA) s aid, “The w orld needs to prepare for a doubling of passengers in the next 20 years. It is also a huge challenge for governments and industry to ensure we can successfully meet this essential demand” (1). Size and Growth Rate Assessment The IATA, in its la test press release, updates that the airline industry is expected to see roughly 7.8 billion air travelers in 2036, almost double the 4 billion air passengers anticipated to fly this year. This latest update comes from the most recent release of the IATA’ s 20 -Year A ir Passenger Forecast, base prediction on a 3.6% average Compound Annual Growth Rate (CAGR) (2). Global air travel is expected to sustain favorable growth rates up to 2030, notwithstanding hurdles faced within the industry. High jet fuel price s and slow economic growth worldwide caused strains within the industry. Although challenging, improvements in passenger totals offset tense economic circumstances which quickly translate into an increased financial performance of the airline industry. S trong repre sentation in passenger patronage supports an impressive GDP growth of 3.5% (the strongest since 2010). Subsequently, the global aviation 3 industry is predicted to reach up to 33.8 billion US dollars in profits by the close of 2018, up from barel y 8.3 billi on in 2011. Annual growth report shows that between “2017 and 2036, the number of airline passengers is expected to increase at a combined annual growth rate (CAGR) of 4.7 percent” (2). Key Indicator to Monitor (Inflation) and Importance and Imp act to the Airline Industry In the airline industry, important macroeconomic indicators are unemployment, inflation, and the business cycle. An important indicator, inflation , influences both the business cycle and unemployment rates, and so it must be mo nitored clo sely by the airline industry. For example, the airline industry earnings are reduced at a startling pace due to inflation. Decreased profits affect the economic position of the airline industry , which in turn produces a weak employment environ ment. More over, there is an interchangeable correlation between inflation rates and the rate of unemployment. This relationship includes trade -offs whereas a given high rate of inflation lowers the rate of unemployment to reduce inflation, price regardin g a higher percentage of unemployment must be borne ( 3). Inflation increases the price of goods and services and decreases the purchasing power of customers. Also, increases to products and services generate higher fuel costs resulting in steep ticket prices and so metimes canceled routes to lower costs for the airlines. Furthermore, inflated fuel prices subsequently increase the overall costs and significantly decreases the demand in the airline industry (IATA, 4). Since 1996 the inflation -adju sted price of air tr avel to consumers has reduced by half. The IATA reports that “International tourists traveling by air are expected to spend more than $750 billion in 2018, a rise of 15% in just over 2 years” (4). Furthermore, financial instability wit hin the industry red uces the ability to hire new employees, thus creates an 4 increase in unemployment rates , which in turns is passed on by influencing the quality of the services given to its patrons, which also contribute s to lower demand for goods and se rvices . Moreover, variations in the interest and employment rates further correlate to the airlines business cycle (or economic cycle). A business cycle is a sequence of various periods of economic growth and a declining period, or, “the transition of t he economy from peak to trough and trough to peak” (5). Inflation will force the airline industry towards economic decay, and it will create financial uncertainty in the industry. The airline industry has a long -term business cycle , which produces low ea rnings and yields to its stockholders. In the development and growth cycles of business, both the production and hiring boom until the full employment of resources and production reach their peak Inflation – Recent Trends Within the Airline Industry Profi ts within the global airline industry will drop in 2018 as fuel, labor and interest rates increase. In December, the IATA flagged higher than average spending on labor and fuel, which make up more than half of the operating expenses within the airline ind ustry. Within the l ast few months, the IATA then lowered its profit prediction for 2018 by 12 percent to $33.8 billion, down from its December forecast of $38.4 billion (6) . Moreover, airline jet fuel costs are estimated to increase to as much as $84 a b arrel in 2018, while the IATA’s December estimates were based on a per barrel price of $70 (7). Furthermore, on April 26, Douglas Parker, CEO of American Airlines, noted that oil prices have spiked to 60% from last summer, a significant increase over a sh ort period (8 ). 5 Me anwhile, the U.S. Bureau of Labor Statistics reports the cost of an airline ticket in 2018 is 10.01% higher versus that of 2000, which is a $10.01 disparity in value (9) . Between 2000 and 2018, airline ticket pricing experienced a median rate of inflation of .53 percent per year. Put differently, a $100 ticket in 2000 would now cost $110.01 in 2018 (9). In fact, in June, IATA’s Director General and CEO, Alexandre de Juni ac, on concerns of increased fuel costs, declared the inevitable, airlines would have to pass some of the fuel burdens onto its passengers (10). As fuel costs increase, the airline’s objectives are still all about their revenues. As seen in the cha rt above, the Q2 2017 to Q2 2018 income statement for United Airlines show us the impa ct to net income and the airline’s ability to increase the ticket revenue beyond the increased fuel costs . Conclusion In conclusion , we consider inflation a well -known e conomic indicator within the airline industry, as well as other signs arising as cruci al for understanding the actual market demand. While GDP remains as an essential driver for the airline industry, its relationship to aviation’s 6 growth has evolved, this is apparent at a global level, though induced by actions at a locally geographical lev el. Moreover, inflation is not the only factor that motivates airline growth, elements such as private consumption, international trade, tourism, crude oil prices, airli ne profits and increase in productivity all contribute to the economic factors ( 11 ). The result provides a unique viewpoint on the strategies of the global airline industry, considering fuel costs, which have significantly increased for all airlines. The federal government in its quest to continue its full potential of progression has imp lemented global standards on security, taxation, and global regulations to build cost -efficient infrastructure and house increasing demand to the detriment of the airline industry. 7 Sources 1. IATA, 2017, 2036 Forecast Reveals Air Passengers Will Nearly Do uble to 7.8 Billion, https://www.iata.org/pressroom/pr/Pages/2017 -10 -24 -01.aspx 2. Statista, 2018, Annual growth in global air traffic passenger demand from 2005 to 2018, https://www.statista.com/statistics/193533/growth -of-global -air -traffic -passenger – demand / 3. OpenStax, 2015, The Phillips Curve. OpenStax CNX. http://cnx.org/contents/06001366 – 18b0 -4756 -84b6 [email protected], 2018, A Journey Through American Transportation 1776 -2016, https://transportation.gov/50/timeline/accessible 4. IATA, 2018, Air Passenger M arket Analysis – April 2018, https://iata.org/public ations/economics/Reports/pax -monthly -analysis/passenger -analysis – apr -2018.pdf 5. OpenStax, 2017, Tracking Real GDP over Time, OpenStax CNX, http://cnx.org/contents/5df753ad -f999 -440b -92fe [email protected] 6. IATA , 2018, Economic Performance Of The Airline Industry, https://www.iata.org/publications/economics/Reports/Industry -Econ -Performance/IATA – Economic -Performance -of-the -Industry -mid -year -2018 -report -final -v1.pdf 7. David Reid, 2018, Airline profits to slump in 20 18, industry body says, https://www.cnbc.com/2018/06/04/iata -forecasts -airline -profit -fall -in-2018.html 8. Dough Cameron & Bradley Olson, 2018, Companies Feel the Impact of Rising Oil Prices, https://www.wsj.com/articles/companies -feel -the -impact -of -rising -oil-prices – 1524786472 9. BLS, 2018, Bureau of Labor Statistics – Consumer Price Index -Airline Fares, https://www.bls.gov/cpi/factsheets/airline -fares.htm 10. Tim Hepher and Victoria Brown, 2018, Glob al Airlines Issue Warning Over Trade Tensions, https://www.reuters. com/article/us -airlines -iata/global -airlines -issue -warning – over -trade -tensions -idUSKCN1IZ04I 11. IATA, 2017, Strong Airline Profitability Continues in 2018, https://www.iata.org/pressroom/pr/Pa ges/2017 -12 -05 -01.aspx

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