Airline Supply Demand Curve

Airline Supply Demand Curve Airline industry provides us air transportation that improves our lives by shortening the time it takes us to reach a destination and also deliver goods. Airline industry undergoes oligopoly market, where only a few sellers that provide similar products or services but differentiated in the branding and the promotion method. Basically, there are four main categories in the airline industry, which is international, national, regional, and cargo. International flights provide services between countries; both national and regional flights are domestic flights within a country, but regional flights have shorter distance compare to national flights; cargo is mainly for the use of transport goods. In this assignment, we are going to briefly explain the determinants and the changes in market condition that affect the demand and supply of the airline industry. There are few determinants that will cause a change in the supply demand curve in the airline industry. Determinants on demand curve . The first determinant is income. When a country experiences a growth in the economy, the average income of citizens will increase. In this case, air ticket plays a role as a normal good, this is because an increase in the income will lead to an increase in the demand of air ticket purchased, one example is families might travel more often as they are in good economic condition. The second determinant is prices of related goods, where a change in price of a good might affect the demand of the other good. In the airline industry, the price of fuel has a direct influence to the demand of air ticket. When the price of fuel increases, airline industry has to increase the price of air ticket to maintain its revenue. Therefore, the fuel price and the demand of air ticket have a relationship of complements, where increase in the fuel price leads to a decrease in the demand for air ticket. However, in some special cases especially during a decline in the economy, the airline industry will not raise the price of air tickets because the customers would scare away. Therefore, the demand of air tickets is also quite dependent to the condition of economy. The third determinant is number of buyers. The more the buyers in the airline industry, the demand of air ticket will be higher. When a promotion is held by the industry airlines, there will be more buyers on the purchase of air ticket. This is because the air tickets normally sell at a lower price to attract more customers especially during a not-so-peak season. Thus, the demand or air tickets will increase and the airline industry will gain more profits even though the air tickets are selling at a lower price. The last determinant is expectation on future income and future price, which means the prediction of consumers on how much they will earn and the value of a good in the future. For example, if the economy has a positive development, where people expect a higher income in the future, they might go for a vacation a nd shift the demand curve of air ticket to the right. However, if they realize there will be an increase in price of air ticket in the future probably due to peak season, they will choose to purchase now then later and cause the demand curve to shift to the right.