Industry Reserch Completion

INDUSTRY RESEARCH COMPLETION

Running Head : Industry Research Completion

INDUSTRY RESEARCH COMPLETION

In APA style

2008

Industry Research Completion

Introduction

The airline industry is one of the most interesting industries that can pose as a field of study for students and economic observers . Some reasons are its global scope , its increasing role in the modern economy and how its recently survived after a life-altering disaster . It is mentioned that after the 9 /11 tragedy , the low cost carrier rises to the top of the airline industry and gave birth

to claims that low cost carriers are the future of the industry . One of the icons of low cost carriers is the Southwest Airline . Prior to discussing about the Southwest Airline , it is important that we discuss how the airline industry interacts with the economy and how it will impact the Southwest Airline in the end Economy and The Airline Industry

There are limitless factors affecting the growth pace and direction of the airline industry . They could come from the social dimension , the economic dimension , political dimension , etc . In this research however I will focus on economic factors that have dynamic relationships with the airline industry

II .1 . Price Elasticity of Supply and Demand

The latest observations revealed the instability of the airline industry . The industry has a comparatively high level of dependency toward its market conditions . During several years of observations , the airline industry displayed sensitive reactions toward events like changes in oil prices , inflation and of course , terrorism . Tickets sales are fluctuating in direct response of those occurrences . Some believed that this is due to the existence of many airline services that poses as alternatives . Some other stated that the availability of transportation alternatives like train or car enhances the elasticity of plane ticket demands (FRBSF , 2002

The elasticity of demand is also influenced by passengers ' purpose of traveling . In earlier days , most of the traveling by air is performed by business managers . Today however , with the presence of advanced communication facilities , businessmen no longer fancy frequent flying While the demands are still filled with leisure travel , but their stability is lowered because leisure traveling are highly seasonal External market conditions also have powerful influence toward airline industry 's supply and demand . Increased tax rate and other luxury taxes will generate higher ticket prices and lower demands for an airline company

II .2 . Positive and Negative Externalities

As mentioned , the airline industry is a direct product of its market conditions . Unlike other industries , externalities play a huge role within the industry . One example of this externality is the fuel cost Instability of fuel costs in the early 21st century is a negative externality that influences the industry . Recently , as the price of oil is experiencing a considerable incline , plane tickets becomes more expensive and demands are proportionately reduced . The most important externality that shook the US airline industry is however , the terrorism act of 9 /11 . Revenues decreased and became highly unstable in direct reaction to the tragedy (FRBSF , 2002...