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Airline Industry Research Essay

2258 words - 10 pages

PAGE PAGE 1 Airline Industry
In this research paper, I will explain how the economy has affected the airline industry by explaining the shifts and price elasticity of supply and demand as well as provide information about the positive and negative externalities. I will discuss wage inequality. The monetary and fiscal policies have had different impacts on this industry, therefore; I will explain these policies. At the conclusion of my research, will discuss my final thoughts on how the economy affects the success of the airline industry and the economic influences that can affect this industry in a negative way.The airline industry is highly competitive industry. Although it is necessary ...view middle of the document...

Typically, airline customers fly for either business or leisure. Business travel is inelastic while leisure travel is more price sensitive (Business Travel News, 2007). The number of consumers that travel for business is determined by the various business that require their employees to take business trips however; with the wave of technology, a large percentage of business travel has been eliminated in order to conserve spending. Telecommunications has become another substitute to the airline industry because of its ability to bring webinars, video conferencing, and other electronic services. With leisure travel, consumers tend to travel by the most economic method available in order to reach their desired destination, whether that means is by airline, car, or passenger rail. Competition consistently affects the price of airline tickets because it gives the customer other options. Substitutes that can be utilize by both business and non-business consumers include cars, passenger bus lines, trains, boats, or even avoiding travel whenever possible. When airline ticket prices increase dramatically, consumers travel by alternative means (the substitues). Even thought the airline industry has raised prices significantly over the past few years, the demand is still high (Business Travel News, 2007).The price elasticity of supply for the airline industry has proven to be elastic. The supply of seats (fares) in the airline industry responses substantially to changes in the price of fears, deeming the airline industry as elastic. In addition, elastic supply can be seen in price wars initiated by competitors in the industry. As the supply of seats is high or low, drastic changes in price accompany the movement in supply.Negative and positive externalities are important in determining supply and demand in the airline industry. The airline industry is greatly affected by all externalities because it is a direct product of the market conditions. In most recent memory are the September 11th terrorist attacks, which affected the airline industry negatively. Many consumers chose not to travel via airline due to concerns of being safe. A drastic increase in fares directly affects the demand for travel, as well as other factors that would causes the price of tickets to continue to increase since a clear correlation between supply and demand exists. Directly following the terrorist attacks on September 11th, prices increase on airline tickets. Consumers as well as the airline industry suffer when the market conditions are not doing well. There is a direct correlation between the market conditions, and the ticket sales.Noise Pollution is a negative externality. The noise externality impacts the economy in many different ways. Government agencies have place restrictions on the agencies to quiet the noise by regulating types of planes that can fly in and out of airfields (associated content, 2007). This externality cases a lost to the airline industry, raising...

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