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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.
Conclusion • The relationship between the price of commodity and the quantity demand. • Low prices dramatically stimulate additional air traffic.
References • References • http://www.r2ainc.com/pdfs/pr_elas.pdf#search='price%20elasticity%20airline