AIRLINE INDUSTRY

Demand Demand is

The desire to own anything, The ability to pay for it, And the willingness to pay.

The term demand signifies The ability or the willingness To buy a particular commodity At a given point of time.

Demand EquationQd = f(P; Prg, Y)

Factors affecting DemandPrice of GoodsPrice of Related GoodsConsumers Disposable IncomeTaste or PreferencesConsumer expectation about future prices

and incomeAll facts and circumstances that a buyer finds

relevant to his willingness or ability to buy goods can affect demand. 

SupplySupply is

The amount of some product producers are willing and able to sell at a given price all other factors being held constant.

Supply is the amount of product businesses are willing to sell.

Supply EquationQs = f(P, | Prg S)

Factors affecting SupplyPrice of GoodsPrice of Related GoodsConditions of ProductionSellers ExpectationsPrice of InputsNumber of SuppliersGovernment Policies and Regulations

Demand and Supply Curve under Perfect Competition

Airline Industry An airline provides air transport services for traveling

passengers and/or freight. Airlines lease or own their aircraft with which to supply these

services and may form partnerships or alliances with other airlines for mutual benefit. Generally, airline companies are recognized with an air operating certificate or license issued by a governmental aviation body.

Airlines vary from those with a single aircraft carrying mail or cargo, through full-service international airlines operating hundreds of aircraft.

Airline services can be categorized as being intercontinental, intra-continental, domestic, regional, or international, and may be operated as scheduled services or charters.

Factors affecting Airline Industry Social

All facts and circumstances that a buyer finds relevant to his willingness or ability to buy goods can affect demand, like disposable income of the consumer

Legal There are increasingly tight rules about the materials that need to go into

aircraft construction in order to make them safer and more resistant to fire hazards. This has had the impact of raising costs. 

Economic Lower interest rates, have meant that people have more disposable income

to spend on luxuries like long distance air travel. 

Political The development of freedom of movement and trade in the European Union

has led to greater levels of competition on European routes coupled with increased movement of people. 

Technological Modern aircraft are safer and more economic to run than in the past

making possible cheap air travel.

Factors affecting Demand of the Airline Industry Price of the Air Tickets Geography of the Country Income of the Consumer Price of related goods

Price of FuelIncrease in the price of Aircraft

Standard of living/ Skewness in Distribution of Income of the populaiton

Government RegulationsChange in the licensing policies

Governance of the Airline Sector Economy/Economic Development of the Country Frequency and Timings of the Flights Environmental Impacts/Weather Conditions of a

Country Availability of other mode of transports.

( Railways, Roadways) Services

Food Availability Safety Comforts Punctuality of the flights. Quality of the Human Resource

Factors Affecting the Supply of the Airline IndustryAvailability of the CapitalGovernment Regulations and Tax StructureDemography of a countrySkewness of the Income of the population

Technological DevelopmentInfrastructure Development of the Country.Availability of Accommodation FacilityMarketing Strategies

Change in India’s Airline Industry Dynamics after Air Deccan’s Entry Captain G. R. Gopinath is the pioneer of low cost air travel in

India. He is the founder of the low cost airline Air Deccan. When Air Deccan introduced airfares almost equaling the AC II-

tier train fares, the response from the leading domestic airlines like Indian Airlines, Jet Airways and Sahara Airlines was immediate. Slashed rates Advanced Purchase schemes (Apex) swiftly began to take

shape, resulting upto 30 to 40 per cent slashed fares for apex fares compared with the original prices.

Their was an increase in the demand of the airlines because of the decreasing airline fares.

Barely a year after Air Deccan took off came the launch of Vijay Mallya's Kingfisher Airlines, followed by SpiceJet and GoAir. Today the number of LLC's( low-cost carrier )has multiplied from three to a dozen in a matter of months.

Since the entry barriers are low, players such as Paramount, IndiGO (Interglobe), Yamuna Air or Kerala Airways, have already filed flight plans and are successful in attracting and rising the demand for the air flights in India.

Continuing a steady progress, LLC's are slowly eating into the aviation market share, capturing almost one third of the total market.

However the dip in market share does not necessarily mean a drop in the number of passengers or revenues for the mainstream airlines, as the size of the air travel segment has also been swelling. In the market driven by the LLCs- with about half of the passengers being first-time air travellers, there's a bigger pie for everyone.

But the biggest loser so far has been Indian Airlines. Even with its trendy make over called Indian, it has been left with a market share of only 23.88 per cent while the potential Jet-Sahara combine controls 45 per cent. As a result it is now exploring the possibility of floating a subsidiary for low-cost operations by merging Air-India Express, the low-fare arm of A-I with Alliance Air, the decade-old wholly-owned subsidiary of IA servicing tier II cities. This could mean that India would have its first-ever LLC, having both domestic and international operations.

Hence, with the increase in the share of LLC’s, India’s Airline Industry is competing with other sectors such as Indian Railways.

Referanceswww.wikipedia.orghttp://www.economywatch.com/world-industr

ies/airline/Managerial Economics (Theory, Application,

and Cases