Economic Profile of the Airline Industry Essay - 2195 Words

Economic Profile of the Airline Industry Airlines use a formula of combining their yield and inventory costs to determine ticket prices. While it is imperative to focus on the idea of being profitable, the focus is to maximize the cost of the flight revenue. One huge factor that encourages an increase in the cost of tickets relates to a customer ordering a ticket close to the departing date, define this as a risk factor because they need to make up for all unsold seats. A high percentage of the revenue is dedicated to overhead costs such as fuel and labor. When a ticket price is higher with one airline than the other, the customer interprets this as being an excessive cost. The demand is greatly affected by the external market†¦show more content†¦Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998). In the long run however, if there is persistent low demand, there can be job reductions in the airline industry and even the number of planes can be changed. So there is inelastic price elasticity of supply in the short run. This leads the airlines to reduce rates they charge to passengers when there is a lean season. In the long term the price elasticity of supply is elastic. The long term in this industry is defined as the time taken to reduce the fleet of planes and the time taken to re structure the workforce. The airline industry is interpreted as being very unstable due to the immediate reaction to tragedies. The airline industry was affected following the September 11th tragedy and it affected other industries indirectly. The airline industry plays a key role inShow MoreRelatedEconomic Profile: Airline Industry2794 Words   |  12 PagesEconomic Profile: Airline Industry Introduction The airline industry provides services for passenger and cargo transport. Over the years the airline industry has faired fairly decent. That is, until the September 11 tragedy in 2001. From 1995 through 2000, the airline industry earned about $23 billion then lost about $35 billion from 2001 through 2005 (McCabe, R., 2008). There are many factors that indicate the economic downfall of the airline industry after the September 11 incident. The purposeRead MorePest And 5 Forces Analysis1689 Words   |  7 PagesPEST and 5-Forces Analysis a. Like any industry, the Airlines industry is influenced by outside environmental forces. 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