Transcript Elasticity of Airline Industries

Elasticity of Airline Industries
Presented by
Cedric Knight
Renee Singh
Sheri Slusher
Wave Robinson
Said Aouita
Introduction

The relationship between the price of a
commodity and the quantity demanded



Price competition
Balancing price with an acceptable level of service
Price elasticity of demand



Responsiveness (or sensitivity) of consumers
Price change is measured by a product
Airline industry strange to this economic principle
Introduction (cont.)

Specific markets



Low prices stimulate additional air traffic
Southwest airlines introduced low fares in the market
Evidence of the airline industries price
elasticity


Low fare carrier
Beginning of operations at New York City's third
airport, Newark
Airline Industry


Price of a commodity and the
quantity demand
Airline Deregulation Act of 1978
Price of Elasticity of Demand


Economic principle – elasticity of
demand
A recent study published by
Roberts, Roach & Associates
Evidence



Southwest airlines
introduced low fares in
the market between
Baltimore and Cleveland
The average one-way
ticket went from $193
to $56
Traffic increased from
89 passengers a day in
each direction to 781
Additional Evidence



An airline know as PeopleExpress in the
early 1980’s provided data of the airline
industries elasticity.
Location New York City’s third airport,
Newark
Accounted for roughly 70% of New
York’s domestic traffic in 1980’s
Low Fare Higher Frequency



Stimulated traffic by more then 60%
Producing nearly 14 million
additional passengers annually
People Express failed and withdrew
from the markets most of the new
traffic disappeared.
Proof
Conclusion


The relationship between the price
of commodity and the quantity
demand.
Low prices dramatically stimulate
additional air traffic.
Questions
References
References
http://www.r2ainc.com/pdfs/pr_elas.pdf#se
arch='price%20elasticity%20airline

