The Airline Industry

Paper Summary:

The writer of this paper contends that despite the large amount of capital required to start an airline, the spotty record of profits in the industry historically, and the red tape that a prospective airline must go through in order to fly, the airline industry sees frequent new entrants and is thus highly competitive. The paper's author continues and states that airplanes themselves are relatively standardized, due to the engineering constraints of building machines that can fly, and due to the fact that there are only a small handful of manufacturers worldwide. So airlines differentiate themselves on three key features - price, service and routes. The paper's author examines the many factors that influence airline's decisions regarding operating procedures, service, routes and prices and attempts to evaluate the effects on airline profitability.

From the Paper:

"Another factor in terms of both price/demand elasticity and in terms of overall demand is that of substitutes. This is particularly true in the business travel sector, and in short haul leisure travel. Any viable form of transportation is a substitute for air travel, be it car, train or bus. Electronic communications and overnight couriers combine to provide another substitute in the business travel segment. This equates to price in that there is a point at which a business trip becomes an unnecessary luxury to be replaced with a conference call. For vacation travel, a similar phenomenon applies, whereby an alternate form of transport can be substituted if plane travel is too expensive. These other modes are often cheaper anyway, but take longer. To fly is to pay a premium for convenience. Should the price of that convenience become too high, the flight will not be taken."

Sample of Sources Used:

• No author. (2008) Chief Characteristics of the Airline Business. Air Transport Association. Retrieved May 26, 2008 from http://members.airlines.org/about/d.aspx?nid=7955
• Baker, Dean. (2006). Policy and Income Inequality. Economist's View. Retrieved May 26, 2008 from http://economistsview.typepad.com/economistsview/2006/08/policy_and_inco.html
• Marks, Alexandra. (2005). How Long can the Big Airlines Survive? Christian Science Monitor. Retrieved May 26, 2008 from http://www.csmonitor.com/2005/0420/p03s01-usec.html
• Adams, Marilyn. (2002). Airline's Balance of Power Shifts. USA Today. Retrieved May 26, 2008 from http://www.usatoday.com/educate/college/business/casestudies/20030314-airlines.pdf
• Reed, Dan. (2002). Why Airlines Have Trouble Turning a Profit. USA Today. Retrieved May 26, 2008 from http://www.usatoday.com/educate/college/business/casestudies/20030314-airlines.pdf

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