Economic Impacts On The Airline Industry

1858 words - 7 pages

Economic Impacts on the Airline IndustryOver the years we have been able to see how airline travel has changed. From the deregulation in 1978, to the terrorist attack of 2001, government regulations have created much of the changes (2007). How has these changes affected the supply and demand in the airline industry? Has this created positive or negative externalities? How has this changed the wages for the workers? Have monetary and fiscal policies affected the changes?With airline industry being a luxury to most of its customers the supply and demand shifts as prices change. At the present time the price elasticity of demand has been very elastic. We can see this when the prices of an airline ticket goes up, the demand for airline travel decreases, and in contrast when prices of airline tickets go down the demand for airline travel increases. But the price elasticity of supply is inelastic. This is due to the long time it takes to increase the amount of planes within the airline. With the understanding of how prices can affect the airline, we can see why over the past few years the airline industry has been taking losses. According to the Air Transport Association the airline industry has been trying to find ways to cut cost to increase profits (2007). One way the airline increased sales was by lowering standard passenger ticket rates. The airline then increased the rates of the first class and business customer to cover the cost of the decrease in the standard passenger ticket rate. The business class customer had seen the highest rate increase since they require airline travel to meet business requirements. But the increases in the economy have other effects.The airline has many positive and negative externalities that also affect cost in the airline industry. The increase in security after the 2001 terrorist attack both had a positive and negative externality. The increase security makes airline travel safer for the customers but in turn increases the ticket price for customers (2006). The negative externality for the airline industry would be the increase price of oil. When the oil prices increase, this also increases the cost of airfares on customers, thereby impacting the economy because fewer customers will fly due to increase cost. With this the airline industry can be affected both ways by externalities.So how does this affect the wages? The wages inequality in the airline industry has been around since before the deregulation. With the turmoil that has been evident with bankruptcies, poor financial performance, and corporate restructuring the airline management has been focused on labor costs (2000). When the airline was regulated the government set the wage standards. Ever since the deregulation, we hear in the news about strikes because the airline can’t find an equal ground on wages with the unions. With the new regulation by the government for added security has not helped. As long as the airline industry is unable to create...

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