Cost Drivers In The Airline Industry

QUESTION 2. Identify and discuss three Cost Drivers
That may impact the costs incurred in the airline industry in the Caribbean. Provide Appropriate Examples to support your response.

THE COST DRIVERS
Cost Drivers are factors that plays a role in influencing the expenses related to a particular business activity. In the case of the Caribbean Airline Industry such factors directly affect the profit margins of companies such as Caribbean Airlines or Liat that operate within the industry. Cost drivers are important because understanding the strategic use of identifying the cost drivers of various value chain activities can improve the performance of a company, allows managers to gain knowledge and awareness of the cost factors that impact

It refers to the costs of acquiring and maintaining raw materials or human resources and other inbound resources that are key to the service and providing value to the customer. In the case of the Caribbean airline industry, fuel is a major resource to the airline industry and the fluctuation s of fuel prices makes it difficult to predict fuel costs. In so doing, airlines may choose to buy fuel in bulk especially when fuel prices are low, and try to avoid purchasing large amounts of fuel when prices are high.
The purchasing and maintaining of aircrafts is also a key resource input that may affect the costs incurred of the airlines. Various models of airplanes has different advantages, for example large aircraft has a large tank in which to hold fuel and are best suited for far destinations. They may be expensive to purchase but the opportunity cost of being able to provide customers with more choice of travel destinations may help to gain customers willing to travel to far locations and the return on investment (ROI) of the large aircraft is quickly recognised. Other aircrafts are smaller and thus more cheaply maintained and purchased and the airline can choose to create a niche market of flying to only Caribbean destinations and establish itself as the Caribbean

These cost choices impact an impact all of the primary activities of the value chain, the inbound logistics, operations, outbound logistics, marketing and sales and services, and perhaps a few of the supporting activities.
In the Caribbean airline industry these strategic choices may affect inbound logistics if the airline decides to change suppliers of their fuel or their aviation equipment or in the warehouse or hanger in which these are stored. This decision have the potential to drive costs up or down. Another such impact can be to the operations of the airline service, for example the decision that airlines made to ask customers to pay for additional baggage. This was initially due to the increase in fuel prices and it was the airlines way of passing on the increases in costs to the customer so that their profits can be maintained. Other operational cost driver examples are the employment of machines to weigh and upgraded security scanners to check the baggage of