Last Updated 27 Jul 2020

Investment decision

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It is essential for new or existing companies to learn a business picture, in terms of economic and industry environment, before they invest into certain industry. The purpose of this report is to provide a complete picture of UK airline industry for the potential entrant through the data and rates about UK economic climate and industry environment, and then help the company to make investment decision. The data and rates that used in this report cover GDP, Unemployment rates, real wage index, taxation, airline industry revenue and profit, loaf factors, as well as transport growth rate.

In order to analyse those data and figure out the relation between them, we use the model of regression, forecasting to study them. Aviation is a major UK industry, it carries over 180 million passengers a year and over 2. 1 million tonnes of freight (The Future of Air Transport, 2000). The UK airline industry also is a successful sample of a long sustainable development, which develops together with the world airline industry. The airline industry is playing a vital role in the development of the UK economics.

However, behind the great industry grows showed by the data, rates in the annual reports, there are various potential threats for the potential entrant who intent to become a new player in this industry. Therefore under such kind of circumstances, it is necessary for us to look into the key factors in terms of economic and business, which will greatly influence airline industry in the future, then to provide information for the company, help them get the view of the airline industry in UK and decide weather or not to enter into this industry.

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GDP is the value of final goods and services newly produced within a nation during a fixed period of time (Andrew Abel, 1998). Research suggests that travel growth is close to the economic growth ( Year Report of European Airlines, 2003). On one side, the economic growth results more trade between the nations as well as within the country; on the other side, the economic growth encourages the market demand for there will be more passengers and more flights/destinations.

With the help of Excel, we can find out the close relationship between the GDP development and the performance of Airline Industry. By applying the tool of data analysis, the P-value is close to 0 (Appendix 2. 1-1), therefore we could prove the close relationship between GDP and the performance of airline industry in UK. Unemployment rates follow economic and business cycles. In times of economic slowdown firms many find their order book less full and hence to be forced to pursue efficiency gains through "downsizing".

Rates of unemployment affect purchasing power within an economy and hence affect the general environment of business (Hooley, Graham at al, 2004) The trend of unemployment rate in UK is showed like this. According to the data from national statistics, the general unemployment rate in UK is declining continuously (Appendix 2. 2-1). The rate will be below 3% from the end of 2004; and at the end of the 2007, the rate is closing to 1%.

May be the real data would a little different from the data we forecasted by multiplicative model because of some unexpected economic or social issues, however, the fact we can get from this forecasting is the better economic environment in the near future. The picture that showed to us is a increasing purchase power of the society, and more passenger could afford the air travel fare, the air travel is going to be more popular in the future as a common public transport method. 2. 3 The development of real wage The method that we used to analysis the data of real wag development is Regression.

Comparing with the data of GDP and Real wage index development, we could get the relationship between them; and then forecast the development of the Real wage on the basis of this relationship. (Source: National Statistics, Real wage index) By applying the method of regression, we can find the close relationship with them, and this chart could illustrate this relation (Appendix 2. 3-1). Forecast result through the line that created by slope and intercept value from the regression. The expected real wage from 2004 to 2008 is showed below, which shows a continuously rising in the future.

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