http://www.economist.com/blogs/gulliver/2014/11/crowded-aeroplanes#comments
In
the article from Gulliver Business Travel, the author focuses his research on
American Airlines supply and demand for flights in 2014. Flying is not the most
enjoyable transportation service for many, and even worse when there are crowed
flights. The first three quarters of 2014 witnessed record rates for filling
seats on flights at 84.1% overall. This includes domestic and international
flights. Since the majority of seats have been bought ahead of time, travelers
hoping to catch a last minute flight or a stand by flight will most likely be
disappointed. The increase in demand has also led to a shift upward in prices
for airline travel.
Five
years ago, American Airlines decreased the carrying capacity and number of
destinations for their flights. The decision allowed the airline to recover
during the recession and helped produce profits. A decrease in fuel prices was
also a contributing factor. Now, many consumers would like to the airline to
increase their capacity and destination, which would cut back on their profits.
Demand has been on the rise in 2014 and will be same in 2015. Spirit Airlines
has even added 10 new destinations for 2015 to combat the demand. In the short
run a move like this may take away from American Airlines business, but will be
beneficial for consumers. Hopefully, the other airlines will follow suite and
increase their capacity, which will lower prices for flights.
Airlines are very sensitive to oil prices and changes in demand, such as the ebola crisis. They attempt to level earnings at a relatively high level to account for the times of turmoil. It would be interesting to see what the industry would do with one or two major airlines pressuring for lower prices.
ReplyDeleteI feel as though it is going to be very hard to get any Airline to lower their prices in attempts to get the rest of the industry to follow suit. The sole purpose for private firms existence is to generate profit and it doesn't make sense to lower your profit levels when every other company in the industry is earning more profit. On the flip side the first company to lower their prices to appease costumers may find themselves earning more profit than other companies. This may be due to consumers changing their preferences and switching airlines if one is offering cheaper rates. In this way the company to lower their prices may be able to make up for their loss in profit per ticket by generating more revenue from an increased costumer base.
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