THE AIRLINE INDUSTRY

The Airline Industry

The Airline Industry

Q: 1

Airline Industry:

Airline industry is described as a strong competitive market. The air travel has always been a large and growing industry. It facilitates international investments, tourism, world trade and economic growth. It is, therefore, centre to the globalization that is taking place in numerous other countries. (Helpman, 2005, 112-136)

In previous years, there has been a shakedown throughout the industry, having wider effects on the trends of international and domestic services expansion. Initially, the industry was partially or completely owned by the government.

European Airline Industry- Market Structure:

One of the most prominent trends of the airline industry during the past few years comprises of the rapid growth in the market share of low fare and low cost carriers. It has become a significant threat to the capability of network carriers. This airline industry is classified into four categories:

International: Planes have around 130 plus seats available to carry passengers almost anywhere in the world. Companies working in this industry have average revenue of one billion dollars or more, annually. These airlines provide nationwide as well as worldwide services. The major airlines include: British Airways, Ryanair, Easyjet, etc.

National: These airlines have a capacity of around 100-150 to carry people. It has the average revenue between one billion dollars and a hundred million dollars. These airlines serve the passengers and move to different regions in the country. This category also involves the former supplemental carriers which supplemented the capacity of the trunk carriers. National airlines operate mostly large and medium sized jets. (Carrigan, 2004, 41-79)

Regional: This category includes companies whose revenue is less than hundred million dollars and focus on short haul flights. These airlines are mainly limited to operate in one region, taking passengers between the major cities and areas surrounding those cities. This has been one of the most profitable and fastest growing communities. They are divided into three main groups: small, medium and large.

Cargo: The purpose of these airlines is the transportation of goods. Important factors that affect the airline include: route structures, cost of leasing or buying an aircraft, airport capacity and technology. These airlines are also part of the national, international and regional aircrafts. Other cargos are generally called freighters which carry nothing beside freight.

The European Union revealed the fact of increase in the concentration of the airline industry. They investigated the prices of air freight and uncovered the collusions between major airlines. The commission charged the airlines to inflate the prices of air freight. They revealed that in order to lower the competition, companies fix prices, fix quotas, limit the production and development, etc. It is also said that companies go for collusion when:

There is a little number of companies in the industry.

Their production costs and methods of production are similar; they come to terms on the prices.

Their products have price inelastic demand.

The laws against the collusion in a country are ineffective or weak.

Q2:

a)

According to the national statistics, the economic contraction of United Kingdom in Q4 was about ...