Economic indicator in the Airline Indistry Essay

Economic indicator in the Airline Indistry - Essay Example Before moving on discussing the effect of these two variables on the performance of the selected airline company, it is necessary to describe briefly all these three indicators that are taken into account for the present analysis- producer price index (PPI), foreign exchange rate, and net income of the company. (Froyen, 2001; Sodersten and Reed, 1994) Producer price index is a measure of average change in the level of prices that producers of a nation receive for the outputs they produce. Foreign exchange rate between two currencies of two different nations can be defined as the rate at which a particular currency is exchanged for one unit of another currency. For analytical purposes the yearly average exchange rate is generally taken into account. (Froyen, 2001; Sodersten and Reed, 1994) Net income of any company, can be defined as the level of earnings that remains after deducting the costs and expenses of the firm from its total value of revenue. For the present study, a period of 2000-2007 has been considered for examining the impact of producer price index and foreign exchange rate on net income of Southwest Airline. Only the unadjusted level of price index for finished products has been considered here. It has been found that during December, 2000, PPI was 139.7. In the next year it dropped to the level of 137.2. However, since 2002, it has started to rise continuously (2002- 139.1, 2003- 144.5, 2004- 150.4, 2005-158.8, 2006-160.5, 2007- 170). PPI can be taken as a proxy of cost of living, although not very accurate as consumer price index. From the value of PPI over the year, it is clear that cost of living has increases which in turn will force consumers to economise on their spending. Therefore, a fall in the demand for air traveling can be expected. Looking at the annual report of Southwest airlines it has been found that during 2000, net income was 603,093 thousand dollar. But it then fell to the