Airline Industry Research

Solution Preview

Airlines Industry Research

Introduction: Airlines Industry

The airline industry is affected by several factors such as monetary and fiscal policies, wage inequality, and price elasticity. These factors play a major role in the functioning of the airlines industry. The condition and circumstances going on in the world changes the demand and supply.

The airline industry had a severe effect due to the attack by the terrorists on the World trade Center in the year 2001. People didn't rely on airlines after this attack as airplanes were used for the attack. The aviation sector suffered huge losses as people stopped traveling by air. Debts of airline companies increased and some airlines went bankrupt. Fiscal and monetary policies were also impacted in a negative manner.

As market condition is continuously changing, it is difficult to predict the future of airlines. The industry has faced several problems due to rising inflation, fluctuations in oil and fuel prices, and rising interest rates. The overall industry is in a weak position as there is decrease in demand. The difficulty has also increased due to intense competition in the industry. Companies are providing additional services at low cost and decreasing fare to attract the customers.

Various factors which create an impact on the airline industry are as follows:

Shifts and Price Elasticity of Demand and Supply

To know about the shifts and price elasticity of demand and supply, the concepts of demand, supply, shifts and price elasticity should be reviewed. Demand can be defined as willingness and ability to pay for a particular product. The demand for a product largely depends on its price (but it is not the only factor which determines it). The shifts in demand curve (extension and contraction) occur as a result of change in the price. If the demand for a product increases due to the fall in price then it is known as extension of demand. A fall in the demand of a product as a result of the rise in the price is called contraction in demand. A change in demand, due to factors other than price is described as shift in demand. Price elasticity of demand is defined as the percentage change in quantity demanded of a product due to the percentage change in its price, other things remaining constant (Air Travel Demand Elasticities: Concepts, Issues and Measurement, 2008).

The supply of a product refers to the various quantities of the product, which a seller is willing and able to sell at distinguishing prices in a given period of time. A shift in supply means an increase or decrease in the quantity supplied at the same price. Elasticity of supply refers to the percentage change in the quantity supplied of a product due to percent change in its price. When the change in the quantity supplied changes more than proportionate to the change in its price, the supply is elastic. On the other hand, if the change in the ...