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Budgeting A Focus on the Airline Industry

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The US Airways incurred a loss that was never expected. American West earnings dropped compared with the previous year. while on the other hand, American Airlines recorded a higher profit compared to the previous year, courtesy of increased fares and higher demand at the same oil prices. Airlines have been keen not to raise their fares due to increase in fuel prices, but they cannot do this for long. In some parts of the country, jet fuel prices rose up to about 18% from the second quarter, and 45% from the early-year period. Therefore, the impact of this is felt now more than ever. From the above, it can be understood that the high jet fuel prices will constantly affect revenue, expenditure (also the fiscal position of the government) and cause inflation. In addition, a part of this paper will identify the major issues in budgeting, the past reforms that led to today’s way of budgeting, and another part will present a new concept that can be drawn from the airline industry when dealing with budget deviations.

Budgeting is the process of financial planning that sets forth the resources to meet a set of goals for a certain period of time. It is an essential element of financial planning, control and evaluation processes of an organization. Donald (1995) argues that every company should always prepare a comprehensive budget that records staffing, operations, and realistic goals for programs in monetary terms. It is also thought of as an action plan, which helps an organization allocate resources, evaluate performance and formulate a future plan in line with the available monetary resources.One major function of budgeting is facilitating financial control. Schick (1996) puts it as control over the inputs of budgeting to make sure that they are certain, accurate, valid, appropriate, legal and honest at the same time.