A period of Global economical slowdown is economically termed as “Global Recession”. Global Recession is defined by the International Monetary Fund, and they consider a lot of factors before terming a period global recession. One of the most important aspects of global recession that is when the total global economic growth is less than 3%, then the IMF declares it as a global recession “and by this characteristic, there are three periods in recent memory that could be termed as global recessions, 1990-1993, 1998 and 2001-2002” (Miller 2010).
Generally we can say that a national recession is a period when the productivity of a country declines significantly. According to economists, if the gross domestic product or GDP of a nation declines in two successive quarters, then one can say that the nation is in the grip of a global recession. But the Global Recession is more difficult to define in all the senses (Miller 2010). Generally it is being observed that the developing countries have a better GDP rate than that of the developed countries, and it makes the calculation quite complex too. But in the year 2007 the world growth was “5% which became only 3.75% in the next year and in 2009 it registered a growth of 2%” (Terrones 2009). This was termed a time of Global Recession. Generally the Global recessions come over after a cycle of 8 to 10 years as mentioned by the economists.
Financial Crisis of 2007-2010
The financial crisis started as the United States of America experienced a liquidity crisis in their banking facilities. The crisis was mainly caused because of the overvaluation of assets by the banks. The direct result of the recession was the collapse of big financial companies leaving many people jobless. The housing market also suffered directly. Economists termed the recession as the worst since the global recession in the 1930s. Still the World is not out of the recession as there are many economical risks in the 2010-2011 economical years (Shen 2010).
In short, we can point out the causes of the Global recession in a list:
- “The sudden growth of the ‘housing bubble’ and its adverse effects” (Shen 2010).
- “Easy credit conditions provided by the banks and the financial companies made a large void in the economical sphere” (Minford 2009).
- Both the sub-prime and the predatory lending concepts can be termed as a major cause.
- “Increasing the burden of debt on the society, along with incorrect pricing of the risks involved” (Shen 2010).
- The failure of economic forecasting
- Commodity Bubble (Miller, 2010).
All these aspects along with some other aspects caused the financial crisis of the recent times. And it had adverse effect on the Global economy. Many economists said that if the liquidity crisis continues than it must extend the period of recession and will worse the economy of the World. The developing countries that were experiencing strong economical growth in many sectors suffered significant slowdowns due to the recession (Minford, 2009).
In This discussion we will discuss about Air New Zealand and the effects of recession on the company.
The national airlines company and also the national flag carrier is Air New Zealand. Mainly it has regular air services to South pacific and Australia, but it has got long flights to Asia, Europe too. The air services began in the year 1940 and earlier it was known as Tasman Empire Airways Limited. The government of New Zealand owned the company from 1965.
The main fleet of the airlines consists of Boeing Jet Aircrafts, Boeing and Airbus for different types of flights. Now the company has a total of 47 aircrafts, and the subsidiaries of Air New Zealand have a total of 52 aircrafts. The company has been awarded many times like “Best Business Class Carrier (1998-Executive Travel Magazine), Best passenger Service Award (Air Transport World Magazine-2008) among other awards” (Shen 2010).
The global recession has taken toll on all the industries, and the aviation industry has not escaped from its grip too. One of the direct effects of the recession is that the fuel prices go up and this directly lands a punch on the infrastructure of the industry. American airlines companies are cutting the number of domestic flights drastically. Researchers are telling that this is the worst time for the aviation industry for a long time and the chances of overcoming the crisis is not seen in near future. As the numbers of passengers are decreasing the airlines as earlier mentioned cutting out the number of flights from their schedules (Miller, 2010).
In the coming years, the airlines industry will face with numerous challenges. The challenges will stay if the economic meltdown does not go away from the global economy. Along with this, the increasing fuel prices are giving sleepless nights to the policy makers of the sector. As a competitive market, several airlines companies are providing cheap air tickets to its customers, along with different holiday packages too. However, only time will tell about the fruitfulness of this effort.
Along with all the countries of the World, New Zealand has also suffered the setbacks from global recession. The country’s unemployment will rise by 7.5% by the year 2011 as the official forecast goes, but unofficial statistics are much grimmer. In the case of Air New Zealand, they are also taking various steps to face the recession (Shen, 2010). They have taken steps like cutting the number of aircrafts, and they also stopped some long distance flights which were not providing good profits were stopped.
Analysis and the Global Context
As earlier mentioned recession is a part of the business cycle contraction which are generally cyclic. The main cause of recession is a widespread drop in spending in many cases. It slows the economic activity of a country or the whole global economy in general. In recent recession, a lot of firms have gone bankrupt and more alarming effect of it was that the unemployment rates went higher than ever. In the final analysis the effects of the recent recession were “bankruptcies (many big financial institutions got closed due to the recession), credit crunches for many sectors, unemployment, foreclosures, deflation etc” (Terrones, 2009).
The Condition of Air New Zealand
Recently, to be very precise, on 27th February, Air New Zealand had issued a press brief mentioning that they had been able to pull out of the recession. In the month of December 2009, their net earnings were “56 million US$, which is more than double than of December 2008” (Shen 2010). The results show that the company has financially improved a lot since the last August. Actually the company can still earn a lot more with there new strategies if correctly imposed. The company is using low cost fuels in their airplanes, and it is helping them to earn profit.
As the results came out, the economists are saying that the trading environment is getting stabled for a time now, but there is a Hugh possibility that the interim results can still show the businesses faltering. If one can look at the detailed account of the business given by the company, one can see that the cargo volumes have been alarmingly lowered in Air New Zealand. One of the very important factors in this business is called passenger demand. In the case of Air New Zealand, “the passenger demand has experienced a drop of 4.6%” (Shen, 2010). This is directly proportionate to the revenue earning and this has cost the revenue to be “downed by almost 15%, and that takes their annual trade down to $ 2.1 Billion” (Shen, 2010). But the result was stabilized “by the low fuel costs and other trading cuts in non-fuel products to almost 11%” (Shen, 2010). Still the demands for the air routes remained quite weak for the company, but air routes to United States are in demand now-a-days. Also Trans-Tasman air routes saw a rise in the number of passengers.
However, still more challenges wait for the company as many of their routes are still not attracting the passengers. One of the most important aspects of the airlines is that they have planned innovative strategies. It is believed that their new strategies will shake up the Trans-Tasman route. These changes can work in the favour of the company in the Pacific market too. They are also introducing “Skycouch”, and premium economy seats for the comfort of their passengers. In the hugely competitive market, the company has to be very innovative to make most of the opportunities that come in their way. The economists believe that the profit will be gradual from the next year and it will start to be stable from sometimes after.
Actually recession has created havoc in all the businesses. In recent business world it is the most widely discussed phenomenon. The recession has really taught a few lessons of the business class of the World, and the aviation sector is one of them. The company hopes that the coming Rugby World Cup and their country, which is recently being promoted as a wonderful tourist destination will help to recover their business. As for now we can only hope for the best for all the recession stuck companies.
- Miller, MH. (2010). Financial Markets and Economic Growth. Journal of Applied Corporate Finance, 11(3), 8-15.
- Minford, P. (2009). Monetary Policy and The Credit Crunch. Economic Affairs, 29(1), 89-91.
- Shen, C. (2010). Credit rationing for companies in bad years. International Journal of Finance & Economics, 7(3), 261-278.
- Terrones, ME. (2009). What happens during recessions, crunches and busts? Economic Policy, 24(60), 653-700.