Price Elasticity in Airline Industry

Price Elasticity in Airline Industry

  • Submitted By: acckishore
  • Date Submitted: 03/16/2009 1:11 PM
  • Category: Business
  • Words: 1095
  • Page: 5
  • Views: 1

The airline industry and the surrounding forces that control its success in the economy, make up this segment of the industries economic profile. Key issues surrounding shifts in price elasticity of supply and demand, and externalities, help to determine how the economy affects the success of this industry. In addition, a thorough evaluation of these issues can help determine how economic influences affect the industry in a negative way.

In the airline industry, price elasticity of demand is separated into two segments of consumers and is considered to be both elastic and inelastic. A good example of how elastic demand is related to the airline industry is in relation to travel for pleasure. Pleasure travelers will be affected by the amount of travel they do based on the demand increase or decrease, affected by prices that lower with high demand or prices that rise with low demand; directly attributed to competition in this market (Gerardi & Shapiro, 2007). Inversely, the business traveler would apply to an inelastic demand for this market. This has shown by demand increases or decreases, as well as the price distribution attributed, which has little effect on the buying power of the business person (Gerardi & Shapiro, 2007). Furthermore, Voorhees and Coppett (1981) explain that elastic demands exist for the pleasure traveler due to demand increase rising while prices lower and vise versa. The business traveler experiences an inelastic demand due to the quantity of service demanded and quantity has not decreased as prices have risen. In other words, this travel is seen as a necessary business tool, not affected by price changes in the demand curve

There are substitutes available to the airline industry. These substitutes include commuting to destinations by passenger trains, passenger bus lines, cars, private charter flights, and taking advantage of the advancements in telecommunication. An external competitive force, telecommunications, has become a...

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