Economic Profile: Airline Industry

2794 Words May 19th, 2008 12 Pages
Economic Profile: Airline Industry
Introduction
The airline industry provides services for passenger and cargo transport. Over the years the airline industry has faired fairly decent. That is, until the September 11 tragedy in 2001. From 1995 through 2000, the airline industry earned about $23 billion then lost about $35 billion from 2001 through 2005 (McCabe, R., 2008). There are many factors that indicate the economic downfall of the airline industry after the September 11 incident. The purpose of this paper is to discuss some of these factors and their impact the airline industry. Issues for discussion include: (1) shifts and price elasticity of supply and demand, (2) positive and negative externalities, (3) wage inequality, and
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Positive and Negative Externalities An externality can be defined as the impact that one persons’ decision has on another person. Externalities may be determined as positive or negative depending on the outcome of the impact they have on an individual or a group of people. In the airline industry transaction of a buyer and seller directly affect a third party both positively and negatively. Banks and credit card companies could be affected positively through interest rates charged to card holders for the transaction. However, there could be a negative affect if card holders do not pay their bill i.e. loss of funds, incurred legal expenses and so forth. Additionally, third parties are affected negatively by air pollution, greenhouse emissions, carbon emissions and environmental taxation. Positive externalities include government intervention to reduce market failure from negative externalities, counter terrorism measures, public safety, generation of tourism, and lowered pollution levels. In an attempt to reduce market failure from negative externalities for airlines through price mechanism intervention and command and control measures the UK and Europe have come up with several strategies. Government policies have been designed to attain more efficient use of resources, endorse substitution between scarce and non-renewable resources, and offer to
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