College American Economics Pan Am Discussion

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Pan Am, was known as a symbol of the historic days of aviation. And was the largest international carrier in the US. The eventual downturn of Pan Am despite a number of highly successful years, the airline eventually had to come to an end. They visioned that the air travel will continue to grow, Pan Am invested half a billion dollars in a large fleet – which turn out to be a big mistake. The price of oil had risen over 400% which hit Pan Am more than other airlines because of its exclusively long-haul flights that required more fuel. At the time, it was the right decision to buy a new jet since the demand was reasonable and was the right choice but due to rising fuel costs, it was the wrong plane to have, it was not the most efficient and flying routes that really weren’t selling that well because demand for travel was going down. Global conflicts persisted into the 1980s, and fuel prices continued to rock operations, beginning a downward spiral for Pan Am. Poor management decisions such as overpaying for the acquisition of Miami’s National Airlines for domestic routes (which did little to feed existing hubs) did not help matters (Singh, 2022). Classifying costs as either irrelevant or relevant is useful for managers making decisions about the profitability of different alternatives. That was really a difficult time for Pan Am but when they made the decision to buy the plane who would have known? Deciding the relevance of a cost item is most important here. Relevant costs should be considered in making the decision. Challenges set Pan Am up for a difficult beginning to the 1990s. Despite a cash injection of $150 million from lenders, the company was losing considerable amounts of money, forcing it to file for bankruptcy in January 1991. There are many ideas and opinions on how Pan Am could have been saved. Pan Am could have built a successful domestic system (which could’ve helped) and perhaps, purchasing newer more fuel-efficient aircraft was one of the things they could have done differently.

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