Week Two Team Paper

The airline industry can be impacted by the economy in many ways thou two economic indicators that greatly impact the industry are producer price index, the oil and fuel prices. The U.S. Producer Price Index (PPI) is released on a monthly basis by Bureau of Labour Statistics (BLS, 2011). The PPI is a weighted index of prices measured at the wholesale level, or at the producer level of goods and services. PPI also reports the trends for these wholesale markets that include all the physical goods-producing industries produced in the country. However, the important products are excluded from this report such as imports (Barnes, 2011).

There are three key Producer Price Index indexes that should be followed which are the PPI Commodity Index, PPI Stage of Processing, and the PPI Industry Index. The PPI Commodity Index is said to be the “crude” commodities which are crude oil, energy, coal, and steel scrap. The PPI Stage of Processing is the intermediate index. Goods here have been manufactured at some level but will be sold to further manufacturers to create the finished good. Some examples of SOP products are lumber, steel, cotton and diesel fuel (Barnes 2011). The PPI Industry is considered the finished index. These are goods fully manufactured or final stage manufactured goods. This index is the core of PPI. By tracking the PPI this could help predict the consumer prices and inflation. If the PPI shows an increase in the wholesale costs, the consumer could expect to pay more for the goods (BLS, 2011).

The cost of oil and fuel has significant global impact on the economy and is a great economic indicator. In the airline industry, one of the most costly consumption is fuel, which is a by-product of crude oil. Today’s oil price averages about a 100$ per barrel, and has been as low as 86$. However, the U.S. Energy Information Administration (EIA), projected that the cost will rise to $104 per barrel in 2011 and up to $108 in 2012 (EIA, 2011). The rising...