Economic Profile: The Airline Industry Essay

1710 words - 7 pages

The luxury to travel is one area that continues to be affected the constant changes in our economy. Air travel, hotel stays and vacations have become apart of everyday life for many people whether they are traveling for business or pleasure. This paper will examine the shift and price elasticity of supply and demand, positive and negative externalities, wage inequality, as well as monetary and fiscal policies. This paper will also review how these factors affect the success of the travel industry as well as the overall negative contribution of inflation.The average consumer expects to pay a reasonable price for reasonable services. The current economic status of the U.S for some has made it more difficult to find reasonable rates for any sort of travel. Those who are employed in the travel industry are also finding it even harder to maintain their businesses as well as their ability to provide the services. Several factors contribute to the ongoing struggles this industry faces.The travel industry heavily relies upon current market conditions to determine their success. Inflation, fuel costs and weather conditions control the amount and frequency in which the consumer will travel. Each one of these factors determines the supply and demand. If the cost of an airline ticket is low, this usually means that there is a surplus of seats, rooms and so forth available on a particular time frame. In turn this encourages an increase in the demand for travel. (Vigeland 2006) If the cost of a ticket is high it could mean that there is less available space as a result the demand could be lower.In addition to these concerns, travel suppliers will also have to adjust to competition meaning that companies who offer a competitive edge are able to attract more business. Competition affects pricing because it gives the customer other options and allows them to shop around for the best deal or lowest price. The elasticity of demand is greatly affected by the customer's purpose for travel. (Jerram 1999) On average most airline customers who travel frequently are typically flying for business. Through innovation and technology, many businesses have eliminated business travel in order cut costs.The travel industry is elastic which means the more the economy fluctuates the more it determines how people will travel. When things are good there is an abundance of travel deals to take advantage of. (IATA 2008) When things are slow, offers are being sold at higher prices to compensate for low sales profits. A large portion of the revenue is dedicated paying the costs such as fuel and labor for many travel suppliers.Consumers have also begun to explore substitutes in order meet their travel needs and wishes. One emerging option would be more domestic US travel as opposed to international. Domestic travel is less expensive and requires less travel time compared to international. ( IATA 2008) Other substitutes include traveling by train, car, or avoiding travel whenever...

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