The airline industry is extremely influenced by the elasticity of demand, externalities, wage inequality, monetary policies, and fiscal policies. The elasticity of demand is impacted solely on the current market conditions, and the consumer’s reason for travel. The September 11th tragedy has had a very damaging affect on the airline industry. It has impacted the fiscal and monetary policies, supply and demand, and it has created many problems worldwide with employment. The airline industry is perceived as being unpredictable because it is relies on the current market, and the market is always changing. Incidents such as inflation, oil prices and terrorist attacks seriously influenced the demand for airline tickets throughout the years. Competition from other airlines consistently affects the price of airline tickets because it allows the customer other companies to choose from. Alternatives are to travel by train, car, or avoiding travel whenever possible, and consumers have resorted to all of these substitutes during unstable times in our economy. The elasticity of demand is very much affected by the customer's purpose for travel. Airline customers usually fly for business or pleasure.
Airlines use a method of combining their income and inventory costs to establish ticket prices. While it is essential for this industry to focus on being profitable, the main focus is to increase the cost of the flight revenue. One huge factor that increases the cost of tickets is when the customer orders there tickets close to their departing date, when people wait to buy their tickets, the airline industry sees this as a risk. And since they need to make up for unsold seats, buying your ticket(s) at the last minute causes them to be higher. Since the airline industries inflation or deflation is a direct result of market conditions, it is very much affected by all externalities. Many people observed a decline in travel after September 11th took place because of safety concerns. When there is a vast increase in fares that undeniably interfere with the need for travel; this affects the price of tickets and they will continue to rise since a clear relationship between supply and demand exists. When the employment rate is high, when the dollar is strong, and the economy is doing well, people can afford to travel more. A high percentage of the income is contributed to operating expenses, such as fuel and labor.
Positive and negative externalities have an important position in influencing the supply and demand of the airline industry. Since the airline industry feels the direct results of market conditions, it is very much changed by all externalities. A lot of people observed a drop in airline travel after the September 11th strike took place, due to safety concerns. After a considerable increase in fares, this definitely gets in the way of the demand for travel; and it will cause the price...