Economic Profile of the US Airline Industry Research Paper

Economic Profile of the US Airline Industry - Research Paper Example This had negative impacts on the industry. The elasticity of demand is affected by the reason the passenger travels. Three reasons that can be accounted for travelling by airplanes are business necessity, time saving and pleasure. The financial crisis forced many travelers to opt for other modes of transport leading to loss of revenue for the industry as a whole. While calculating the price of tickets the airline companies use a formula that takes care of the yield as well as inventory cost. Sometimes customers look to book tickets that are close to the departure dates. There is certain amount of risks to the airline industry as if the seats are not filled the flight will have to travel with vacant seats which again brings revenue loss to the consumers. In order to mitigate such kind of risks the airlines have to increase the price of tickets. The high volatility of the prices of crude oil leaves the airline operators at greater risk of cost fluctuations. Therefore the demand conditi ons are highly affected by the fluctuations in the crude oil prices. The travel by airplanes is considered as luxury and luxury tax is added with the price of tickets. The demand conditions can be affected by the existence of such taxes too. The price elasticity of supply for the airline industry is elastic. The availability of seats in the airplanes responds substantially to the changes in prices which prove the elasticity of the airline industry. Elastic supply can also be witnessed in the price wars that are initiated by the competitors. The drastic changes in the prices of tickets bring about large or small changes in the availability of seats on airplanes. Monetary and/or fiscal policies that have affected the airline industry The...This research paper offers comprehensive analysis of the current trends on the American market, where the airline companies operate. Also, effectiveness of the economic policies of the US government toward the industry is evaluated. The airline industry is a cyclical one. The industry witnesses bankruptcy as well as M&A activities every decade. The estimates of the International Air Transport Association and that of Federal Aviation Administration expect a rise in cargo traffic and passengers along with decline in profits for the airline companies. The airline industry is dependent on the conditions of the market.. The demand for the industry was greatly influenced by the global financial crisis and the fluctuations in the oil prices. It is a competitive industry as many players have emerged into the market. The other modes of transport provide competition to the industry. The monetary and the fiscal policies can influence the aggregate demand. Monetary policies can influence the shift in the aggregate demand for goods as well as services by increasing the supply of money. The economy can also contribute in the industry through lack of competition or through increased competition. The same factors that determines economic performance also affects the growth of the international airline industry. The factors includes growth in international trade, the rise of GDP and the growth of the industries that use air services. Sustained economic growth of international trade has strong positive impact on international traffic.