Airline Sales Plunge Blame Low Fares - Essay Example

Unlike the demand curve, the supply is positively related to the price hence the higher the price, the higher the quantity supplied to the market. At market equilibrium, the quantity demanded is equal to the quantity supplied hence there is absence of excess demand or excess supply in the market (Wessels 28). The quantity demanded is determined by several factors which include the income levels of the consumers, the price of the commodity, the price of related commodities, the future expectations of changes in price and the population.

The quantity of commodity supplied in the market is determined by the price of the commodity, technology and the prices of inputs of production. The supply is also determined by subsidies and government taxation (Wessels 58). This paper will discuss the airline sales plunge which may have been blamed on the low fares. The paper will examine the effect of the recession on the airline industry. Research questions and methodology The paper will answer the questions on what were the causes of decrease in the quantity demanded of airline tickets.

The paper will also answer the question on the effect of the fares charged on the cost or price which was actually paid by passengers. The paper will review articles on the impact of low fares on profitability of Airline industry during the recession. The airline passenger sales revenues declined by 19 percent in September year-to-year which was not attributed to lack of business but the low passenger prices for the fares. The number of passengers who travelled during the period also declined slightly by 2 percent according to the Air transport association while the average price per one mile of flying declined substantially by 18 percent (Smith 2).

The scenario can be explained by the low demand in the airline industry. The fees which started to be charged on services which came free initially include the checked baggage fee, pet travel, non-alcoholic drinks and food. The extra fee accumulated to $ 1.15 in 2009.bsome of the major carriers like U.S Airways, Delta Airlines and Continental Airlines gained about $ 10 surcharge revenues for holiday travels while maintaining their normal fares. The decline in Airline industry profitability was also affected by the increasing prices of crude oil (Smith 2).

The decline in the quantity demanded of the Airline industry fares during the recession can be attributed to the decline in consumer income levels. A reduction in the income levels would lead to reduction in the quantity of goods demanded especially goods which are not basic. The recession led to decrease in the number of tourism travels and other leisure related travel hence the Airline industry had to lower their prices in order to attract and retain customers during the recession. The low fares partly attracted demand since the passenger volumes fell by 2 percent but it negatively affected business profitability since prices of inputs like crude oil increased.

The prices of other related transport services like ship transport did not increase hence the airline industry had to lower their prices so as to maintain their customer base (Smith 4). The recession negatively affected the global economic and business environment whereby major multi-national companies scaled down their operations hence the volumes