Economic Profile: The Airline Industry

Essay by pengwen603 August 2008

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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...