The Airline Industry and the Economy

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The Airline Industry

There are several factors that has impact on the airline industry these factors include the elasticity of demand, monetary, fiscal and federal policy of government, and externalities. Change in monetary, fiscal and the federal policy affects the airline industry in a positive way if favorable or a negative way if unfavorable. Apart from this airline industry elasticity of demand is completely based on the market conditions, customer traveling purpose and the available substitute of connivance. External factors also affect the elasticity of demand in airline industry. If we take an example we can say that the incidence of 9/11 had a huge impact on the airline industry. Its demand was completely affected by the incident and it took time for the industry to get back on track. The other factor rate of wage inequality has improved in the airline industry improving due to legislation to increase the pay of workers participating in cities across United States. Due to the sluggish economic condition across the world airline industry financial performance has been severally affected and can be found volatile and unstable in last few years.

Airline Industry and the Elasticity of Demand

If we look at the historical performance of airline industry we can find that, the airline industry has been extremely volatile and unstable because of its dependency on current market conditions and this is the reason that the airline industry is highly elastic. As far as year 2005-2008 is concerned demand of airline tickets is mainly influenced by inflation, oil prices, adverse economic conditions across the globe, and the terrorist attacks due to the fear of 9/11. If we look at the price of airline ticket a huge competition from domestic as well as foreign carriers makes it change. Substitutes of airline industry is car, bus, train and other SUV and LUV vehicles affecting the demand of airline industry and due to the bad economic conditions customers preferred low cost travel option rather than travelling through high cost airplanes. The purpose of travel for customers has a great impact on the airline industry. As we know that the main purposes to travel through airplane are tourism and business and these purposes affect the airline industry badly. Upgradation of technology and safety measures has helped the airline industry to increase its demand.

Due to huge competition airline companies prefer cost cutting mechanism to increase profit. Airline companies reduce there ticket price by reducing the cost for the company by adopting various mechanism and by reducing the price they try to attract customers and increase demand for them. As in a huge competition it is difficult on to focus the idea of ...