Essay Summary of American Airlines

The involvement of bearable costs is the most prominent reason of irregularity of demand and supply. It means, once handling capability has been shaped, despite the stage of capability consumption, it may require the involvement of huge preventable costs genuinely. In result of this situation, industries face an abnormal demand supply at a cost change due to several economic factors. Additional states of the abnormal situations in demand and supply, concern to the volume of any firm’s capability to the universal market.

The focus of the market depend upon the mass of an industry’s ability, more the volume of industry’s ability directly proportional towards the capturing the market. On the other side, the existence of potential consumers is associated with the more delicately isolatable demand. A general airline industry considerably fulfills numerous conditions, essential and adequate, reliable with the arrangement of an empty core. A Scheduled airline works in a sense like to the ocean liner industry. It has at least for limited distances has pre-arranged preventable cost whereas, in large investment regarding in a commercial airplane, shows a ruined cost.

Nevertheless, once the industry has dedicated to a meticulous convoy and schedule it cannot alter productivity without acquiring considerable adjustment cost. “Yet, as emphasized in the opening chapter, airline management is about matching the supply of air services, which management can largely control, with the demand for such services, over which management has much less influence. To be successful in this an airline can be a low-cost operator or a high-cost operator. ” (Doganis, 2002) As far as the cost condition of an airline is concerned on the supply side, per mile price goes down as the covers miles increased.

Any how, the technological limitations entail that by dipping the capacity of plane, distance covers could be augmented. Similarly, price per traveler depends on the number of seats packed on a plane lifts up to full competence. Effects of Economic Change And Influential Externalities Recent economic collapse has affected every area and industry of the global economy. Consequently of the externality to airline industry could not be measures easily as yet, because they are linked with different related elements which are in the process of being retained on their past positions.

It could be possible that the requirement would descend within an uncertain global market. The constant change in market buying behavior points out that the flexibility of market demand impact is lot more dependable on economic influences and change in international rules and regulations for relevant industries. In an international scenario the perfect flexibility of demand, eradicates the potential barriers for achieving consumer satisfaction. Eventually, any magnitude could be acknowledged by the market at the specified price and there would be remote chances to plug capacity by aggressive pricing feedback.

When externalities are important, there is a need to either enforce solutions or give the preference to the interests of society. It may be done through delegate democratic system or something else. “Many sources can agree upon the fact that it should not be classified a natural monopoly. The airline industry will continue to swerve up and down according to market conditions, and the same externalities will be in existence. ” (Externalities Affecting, 2007). Hence, Political economy means the observations of consequences and means regarding collective choices and benefits that are unlimited to only individual transactions.

As far as the thoroughly explained liberal political tradition is concerned, there is a negation found between socialized production and individual decision-making. Wages Inequality Doganis, in his book The Airline Business in the Twenty-First Century, does not feel any difficulty to find out mechanisms which is helpful to know the government planning regarding sharing wage in the previous race. Economists firmly believed in the policy analysis while other said that there is no need of such mechanism which could brief the rise in wage dissimilarity.

They might or may not be able to determine the ups and downs of economics very effectively, due to some lack of training but he, assured bout the existence of mechanism in about every where. Take an example of a Court Judge who was telling workers of Northwest if they would go to prison in case of refusal to toil for the income / wages that the company intended to pay them. Actually, this is not complete speech of the judge; he never intended to pressurize the workers but convinced them that, it was a policy matter. ” It is for this reason that controlling labor costs is so crucial for airline managers.

In the early years of the 21st century it is the key to cost control because, unlike fuel and other inputs whose prices are externally determined, airlines can and must influence their labor costs. ” (Connor, 2001) In other case, if Flight Attendant Services Corporation (FASC) which provides services of to other companies, did not accept lower wages offered from Northwest for its workers, then would any judge be able to intimidate the FASC with prison? “Statistics indicate that wage inequality created a high occurrence of turnover. When the wage increase occurred, the turn over rate reduces, and work efficiency rose.

” (Wage Inequality, 2007) In last quarter century, many such examples of The New York Times published news about a potential strike by flight attendants at Northwest Airlines that was blocked partially by a federal Judge and recommended that the management and the workers should have been on table talk. In that case, the company Northwest was suffered in industrial action by the employees. Fiscal & Monetary Policies in the Airlines Industry After the incident of 9/11, the airline industry suffered in great economic disaster pertaining to decline in number of passengers as well as considerably higher fare.

Only few airlines were in profitable condition even before that day year 2001. It was being said that some deregulations caused problems for industry as well as passengers. “While there has been some relaxation of reporting requirements, consistent with the regulatory reform trend, much data are still filed and available to the public. These records show traffic and revenue, broken down in various ways such as by passengers and cargo, and aircraft statistics. Of course there are balance sheets and income statements.

” (Connor, 2001) The under noted analysis will suffice to the some extent about airline deregulation history and possible policy changes that help to develop competition in coming era. Nature of Airline Competition Amalgamation of firms within competitive environment encouraged the growth in the airline industry. As, in 1979, the U. S. airline showed a marvelous performance while following the rule of combination with competition. “In air travel demand estimations, income and prices of other relevant goods should be included in the estimation equation” (Air Travel, 2009)

In 1983, Canada maintained her ticket average prices as compare to the U. S. Consumers were suggested a slice of benefit, but some spectators of that time disagreed with the idea that airline rivalry was beneficial for people. By the attack on World Trade Center, the airline industry has been badly affected in respect of its economic and monetary policies. This incident influenced the industry astonishingly in the form of increasing prices in base tickets excluding taxes called September 11th Security Fee. Public preference in flying had been least.

People were afraid of this journey or prices of the tickets also created hindrances in deciding to fly. Many airline companies paid-off their workers. The Travel agencies were also facing declining in their sales. In shore, these reasons were directly responsible for some airlines ruined. “The Airline industry continues to be affected by the overall condition of the nation’s economy. When healthy spending exists and pleasure travel is frequent, air carriers are able to fill flights, raise prices, and maintain a stable economic environment.

” (The Airline, 2008) Passengers are people who came to know factual positions of the airlines regarding uncertainty while flying or steep high fares. In order to deal with any miss-happening occurs, an airline should keep minutely checking its financial position either it could stand longer or not. An airline should make their policies in such way that there is a chance of any amendment according to the circumstance. Conclusion With this above findings we have come to know that the American Airline Industry has changed in a great deal over the last few years.

Possible reason for this often related to uncertain international environment based on changing buying behavior, security situation and change in mandatory / fiscal policies. If we have security threats in future, we might see heavy down sizing, inflation in rate and other negative economic influences. References American Pilots (2008) “American Pilots Fight for Return to 1934 Wages with Adjustments” Retrieved On March 23 2009, from, <http://aviationdally. crankyflier. com/2008/12/08/american-pilots-fight-for-return-to-1934-wages-with-adjustments/> Air Travel (2009) “Air Travel Demand Elasticities: Concepts, Issues and Measurement”

Retrieved On March 23 2009, from, <http://www. fin. gc. ca/consultresp/Airtravel/airtravStdy_1-eng. asp> Connor, William E. O’ (2001). An Introduction to Airline Economics. Praeger: Westport, CT. P. 69. Doganis, Rigas. (2002) Flying off Course: The Economics of International Airlines. Routledge: London. P. 180. Doganis, Rigas. (2001) The Airline Business in the Twenty-First Century. Routledge: London, p. 101. Externalities Affecting (2007) “Externalities Affecting the Airlines Industry” Retrieved On March 23 2009, from, <http://www. associatedcontent. com/article/430738/externalities_affecting_the_airlines_pg3.

html? cat=3> Raghavan, Vedapuri S. & Raghavan Jayathi (2005) Application of core theory to the U. S. Airline industry, Journal of the Academy of Business and Economics. The Airline (2008) “The Airline Industry: The Effects of Monetary and Fiscal Policies” Retrieved On March 23 2009, from, <http://www. associatedcontent. com/article/1072074/the_airline_industry_the_effects_of_pg2. html? cat=3> Wage Inequality (2007) “Wage Inequality in the Airlines Industry” Retrieved On March 23 2009, from, <http://www. associatedcontent. com/article/427470/wage_inequality_in_the_airlines_industry_pg2. html? cat=3>