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An Economic Profile Of The Airline Industry

The purpose of this paper is to give an overview of the airline industry from different perspectives. The airline industry is the most international business that exists. There are a multitude of variables to be considered affecting the airline industry and carrier profitability, which will be discussed in this paper.
Consequently it will be necessary to evaluate, determine and explain, what potential negative externalities and market factors influence shifts in price elasticity of supply and demand as they ultimately affect profitability and the health of the industry as a whole and that of individual carriers as well. An assessment of related market factors will be necessary in order to determine the impact of these influences on such areas as existing wage disparities or inequalities. Also, of importance are some additional considerations relative to this industry. For example, how do monetary or fiscal policies negatively or positively affect the industry.
Airline travel for the most part is a luxury however in certain instances it is a necessity such as, for business travel. Although there are substitutes for air travel for instance cars and trains although these are not necessarily adequate substitutes.
Price elasticity of supply and demand
Since its deregulation in 1978, the U.S. airline industry has evolved into a highly competitive industry that has struggled to align its capacity with consumer demand over the business cycle. Qihong (2006) states, "for the most part, too many seats have been chasing too few passengers." Morrison et al. (1995) suggests that "a major cause of the problem is that airlines must make their capacity decisions years in advance because of the time it takes them to acquire new aircraft." Overcapacity occurs when unanticipated changes in the macro economy or external shocks, such as a war, reduce passenger demand. Morrison et al. (2006).

Downturns in the...