Economics Factors Affecting Demand and Supply

AIRLINE INDUSTRY
Demand
Demandis
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 Equation
Qd= f(P; Prg, Y)
Factors affecting
Demand
Price of Goods
Price of Related Goods
Consumers Disposable Income
Taste or Preferences
Consumer expectation about future prices
and income
All facts and circumstances that a buyer finds
relevant to his willingness or ability to buy
goods can affect demand.
Supply
Supplyis
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 Equation
Qs=f(P, |PrgS)
Factors affecting Supply

Price of Goods
Price of Related Goods
Conditions of Production
Sellers Expectations
Price of Inputs
Number of Suppliers
Government Policies and Regulations
Demand and Supply Curve

under Perfect Competition
Airline Industry
Anairlineprovides air transport servicesfor traveling
passengersand/or freight.
Airlineslease or own theiraircraftwith which to supply these
services and may formpartnershipsorallianceswith other airlines
for mutual benefit. Generally, airline companies are recognized
with anair operating certificate or license issued by a
governmental aviation body.
Airlines vary from those with a single aircraft
carryingmailorcargo, through full-service international airlines
operating hundreds of aircraft.
Airline services can be categorized as being intercontinental, intracontinental, 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 Fuel
Increase in the price of Aircraft
Standard of living/ Skewness in Distribution of
Income of the populaiton

Government Regulations
Change 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
Industry
Availability of the Capital

Government Regulations and Tax Structure
Demography of a country
Skewness of the Income of the population
Technological Development
Infrastructure Development of the Country.
Availability of Accommodation Facility
Marketing Strategies
Change in Indias Airline Industry

Dynamics after Air Deccans Entry
Captain G. R. Gopinathis the pioneer of low cost air travel in
India. He is the founder of the low cost airlineAir 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 LLCs, Indias Airline Industry
is competing with other sectors such as Indian Railways.
Referances
www.wikipedia.org
http://www.economywatch.com/world-industries
/airline/
Managerial Economics (Theory, Application,
and Cases

Economics Factors Affecting Demand and Supply

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AIRLINE INDUSTRY

willing and able to sell at a given price all other

Supply is the amount of product businesses

are willing to sell.

Factors affecting Supply

Demand and Supply Curve

Factors affecting Airline

to spend on luxuries like long distance air travel.

has led to greater levels of competition on European routes coupled with

possible cheap air travel.

Factors affecting Demand of

Price of the Air Tickets

Standard of living/ Skewness in Distribution of

Income of the populaiton

Change in the licensing policies

Governance of the Airline Sector

Factors Affecting the Supply

Availability of the Capital

Change in Indias Airline Industry

India. He is the founder of the low cost airlineAir Deccan.

(Interglobe), Yamuna Air or Kerala Airways, have already filed flight

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