The concept of supply and demand Supply and demand is the most fundamental concept of economics and it is the

backbone of a market economy. Supply Supply is the amounts of some product producers are willing and able to sell at a given price all other factors being held constant. Demand Demand refers to how much (quantity) of a product or service is desired by buyers. Quantity The quantity demanded is the amount of a product people are willing to buy at a certain price. Quantity supplied is the total amount of a good that sellers would choose to produce and sell under given conditions; Price of the good. Prices of factors of production.(labor, capital) Prices of alternative products the firm could produce. Technology. Productive capacity. Expectations of future prices.

The relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. The four basic laws of supply and demand are:1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price. 2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price. 3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price. 4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.
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Trends that dominate the airport/airline industry Historic growth trends

Since the 1950s the global aviation industry has evolved quickly. Today it is difficult to imagine a world without air travel. Half a century ago, during the post-war years, aviation was still an activity for the well-to-do international traveler, domestic business traveler or the enthusiast pilot. It was not an activity for working families or the wider population. An era of change

The aviation industry has evolved significantly over the past several decades, both leading and reflecting broader economic and social trends. It is an industry driven by technological change, evolving from the jet airliner, which opened up air travel to the broader population in the 1950s and 1960s, to todays quieter, more efficient aircraft that play an important part in keeping air travel affordable and accessible. The industry has always relied heavily on advanced technology to ensure safe travel. Today advances in technology allow the industry to pursue added efficiencies and to improve safety and passenger comfort while lessening the impact on the environment. Making the best use of future technologies, while managing any risks associated with their introduction, will be an important factor in catering to future industry needs. Exceptional growth Which has continued into the first decade of the twenty-first century? The regulatory framework governing international aviation is based on the 1944 Convention on Civil Aviation, also known as the Chicago Convention. The Convention established, under the United Nations, the International Civil Aviation Organization (ICAO) to develop and maintain arrangements for the international governance of civil aviation. Globalization and commercialization Globalization As a result of globalization, the world has turned into one village. The airline industry has developed into a competitive industry. Working against time, with providing excellent service to the customer. Making faster airline services to make the journey safer and faster. Commercialization As a result of government organizations shifted to the private sector with the deregulations on the industry made radical changes in the airline industry. As a result there was a boost in the economic performance. And efficiently and effectively making changes in the airline industry.
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Airline makes revenue when there is supply and demand Changes in the economy have a big affect on the airline industry. The elasticity of demand, externalities, wage inequality, and monetary, fiscal, and federal policies all have an impact on this industry. The airline industry is constantly changing due to todays market and today we will be looking at the reasons behind it. Price Elasticity of Supply and Demand

Traveling by air is both elastic and inelastic depending on whom it is that is traveling. If a family is planning a trip just to take a vacation and the price of an airline ticket is extremely high, more than likely they will decide to wait on the trip until the prices are lower. This shows that the airline industry in considered elastic. However, if a businessman needs to be at a seminar across the country by the next day, he will need an airline ticket regardless of the cost. In this example, the airline industry would be considered inelastic because it is a necessity. The current market has a big part in the supply and demand in the airline industry. For instance, with the price of oil rapidly increasing, the cost of an airline ticket is also increasing and the demand for leisure travel is decreasing. After 9/11, people were afraid there would be another terrorist attack involving a plane and the demand decreased. Another factor in the cost of an airline ticket is the date it is purchased. If there is an emergency and someone purchases a ticket close to the departure date, even though there are unsold seats available the cost will increase.
According to - Air Transport Association of America

Economy impact by small and medium-hub airports

Airports are important on a local, regional, national, and global basis because they provide an essential role in the movement of passengers and cargo, facilitate commerce and national defense, and link communities with one another. As globalization continues, the competitiveness of national economies and industries increasingly depends on airports and aviation infrastructure. A comparison of the economic impact generated by individual small- and medium-hub airports indicates that there is a relationship between the numbers of enplaned passengers and the total economic impact; Factors contributing to differences in the economic impact of airports include the size of the population, the characteristics of the economy, and the type of airline and aviation services provided. The economic importance of airports stems not only from the fact that they are major generators of economic activity but also because they can act as a catalyst for wide range of economic activities. An airport can act as a strategic catalyst by: Influencing business location decisions
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Attracting new investment from U.S. and overseas companies Retaining and securing the expansion of existing businesses in the face of competition from other areas Promoting the export success of businesses located in the area Enhancing the competitiveness of the economy through the fast and efficient delivery of passenger and freight services Attracting high technology businesses that have a high demand for air travel and the shipment of goods Acting as centers of employment and training in a region by generating demand for a wide range of skills Integrating isolated communities with the global community According to - aerohabitat.eu

The environment of aviation economy

The aviation industry is particularly susceptible to external economic factors because it affects and depends on a substantial number of industries. Also, because the industry involves operating between borders, then economic factors from other parts of the world other than the domestic market also affect it. Issues such as fiscal policies (both within and without the countries of destination), wage inequality and positive and negative externalities have a way of changing operations within this industry The civil aviation industry is highly cyclical, being extremely sensitive to the economic cycle. In times of economic hardship, people simply fly less often than they do in the good times. This is true of both the leisure and business sectors. This characteristic is exemplified by the industrys abrupt change of fortune in the years just before and after the global crash of 2008. Many people in the industry described 2007 as one of the best years that they had ever experienced, with both the civil and military sectors benefiting from bulging order books. Indeed, 2007 marked the first time that a simultaneous upturn in the civil and military sectors had occurred. Factors supporting the industry included: booming global growth, which supported demand for both cargo and passenger services; buoyant corporate profits, which drove demand for business jets, and business travel in general; the rapid growth of demand in emerging economies, such as China and India; conflicts in countries such as Iraq and Afghanistan, which drove demand for military equipment and services;
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Huge investment in new aircraft by the civil sector in response to environmental issues, and to the high price of oil (fuel is the biggest operating cost facing any airline).

According to The commercial aviation The economic regulation group The Economic Regulation Group (ERG) regulates airports, air traffic services and airlines and provides advice on aviation policy from an economic standpoint. Its aim is to secure the best sustainable outcome for users of air transport services. ERGs main tasks are to promote liberalization through the removal of Government-imposed restrictions to entry to the airline market and to facilitate the optimal supply and regulation of aviation infrastructure. ERG acts as expert adviser to the Government and collects, analyses and publishes statistical information on airlines and airports. Specific responsibilities include:

Economic Regulation of Airports Economic Regulation of National Air Traffic Services Economic Policy Advice to Government Statistics Surveys

According to - webarchive.nationalarchives.gov.uk

Cost controlling in airlines The airline industry is a service industry with a low level of profitability because it is labor, capital, and technology intensive. The industry is also affected by external environmental changes as well as internal operations. Among other things, jet fuel is a major component of commercial airlines operational costs .Therefore, airline companies must always make every endeavor to exercise cost control, an issue that has become even more significant during and after the dramatic increases in crude oil prices that began in 2008, as well as the ongoing global financial crisis that started in the same year. Five independent policies and twenty-one strategies are developed via a literature review, interviews about the focal airlines empirical operations, and IATA cost control recommendations. These five policies are: C1: Fuel cost reduction policy C1.1: Optimizing aircraft fleet dispatch
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C1.2: Reducing dead weight of an aircraft C1.3: Improving aircraft fuel saving performance C1.4: Conducting fuel hedging strategies C2: Employee productivity improvement C2.1: Scheduling reasonable flight hours for flight crew C2.2: Reducing cabin crew over-time hours C2.3: Dispatching maintenance staff efficiently during direct working hours C2.4: Encouraging employees to provide cost-control strategies C3: Flight operations C3.1: Correcting en route flight plans and alternate airports C3.2: Optimizing flight speeds using the efficient cost index C3.3: Optimizing aircraft landing procedures C3.4: Reducing fuel consumption in ground operations C3.5: Announcing fuel saving policies and procedures, and carrying out safety audits C4: Aircraft maintenance cost reduction C4.1: Replacing old aircraft C4.2: Optimizing maintenance scheduling C4.3: Establishing maintenance resource sharing networks C4.4: Establishing an effective parts supply chain C5: Operating procedure simplification C5.1: Increasing direct ticket sales C5.2: Promoting bar code boarding passes C5.3: Reducing system-related reservation costs C5.4: Shortening taxi-out times According to - academicjournals.org

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Airline economic environment, its demand side, supplies side and competitive market

Airline Supply Terminology Flight Leg (or flight sector or flight segment) Nonstop operation of an aircraft between A and B, with associated departure and arrival times Flight One or more flight legs operated consecutively by a single aircraft (usually) and labeled with a single flight number(usually) Route Consecutive links in a network served by single flight numbers Passenger Paths or Itineraries Combination of flight legs chosen by passengers in a OD market to complete a journey

Airline Markets The purpose of each air trip is to move from the true origin to the true destination of the passenger. There is typically an outbound and inbound portion of passenger air trips. In the Air Transportation System Typically Arrival= Departures Direct/ Connecting Flights Air Travel Markets Opposite Markets passengers who originate their trips from the destination airport region. Parallel Markets the flight operations serving each parallel market can to some extent substitute for each other CityPair Markets Demand for air travel between two cities RegionPair Markets Demand for air travel between two regions or metropolitan areas AirportPair Markets Parallel CityPair and RegionPair Markets Demand can be disaggregated to different airports serving the cities or regions With the existence of overlapping airport regions, parallel markets, and the sharing of scheduled airline supply on connecting flights, even distinct and separate origindestination markets are interrelated. According to - catsr.ite.gmu.edu
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The competitive market The airline industry is characterized generally by low profit margins and high fixed costs, primarily for personnel, aircraft fuel, debt service and aircraft lease rentals. The expenses of an aircraft flight do not vary significantly with the number of passengers carried and, as a result, a relatively small change in the number of passengers or in pricing could have a disproportionate effect on an airline's operating and financial results. Accordingly, a minor shortfall in expected revenue levels could harm our business.

The affective factors in airline industry Political factors

The air line industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers. an unstable political environment causes uncertainly in the minds of the air travelers , regarding travelling to particular country. International air lines are greatly affected by trade relations that their country has with others. Unless the governments of the two countries trade with each other, there could be restrictions of flying n to particular area leading to loss of potential air traffic (e.g. Pakistan & India) Another aspect is that in countries with high corruption levels like India, Srilanka, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister and the other government officials is necessary. Economic factors

Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & price increase. After the September 11, incident the world economy plunged in to global recession due to the depressed sentiment of consumers. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs, which increased after WTC bombing. This prompted the industry to lay off employees, which further fuelled the recession as spending decreased due to the rise in unemployment.

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Social factors

Social factors have a profound impact on businesses, as well as the overall marketplace. Airline companies alone have had to spend a great deal of time and money revising their policies, procedures and prices to accommodate the ever-changing influences of their customers over the years. As society changes, so must the business if it intends to thrive in the market The changing travel habits of people have very wide implications for the airline industry. The airlines have to recognize varied income groups , different religions and should serve them accordingly.

The changes in air transport The first powered flight was in 1903 and carried out by the famous Wright Brothers. Therefore aircrafts are over one century old. In the first half of the century progress was extremely fast, with frequent breakthroughs and developments. In the second half of the century progress was much smaller. Aircraft's speed didn't increase, and the most significant changes in the industry were newly designed wide bodied planes and turbo engines. On the other hand it was only in this century that air transport changed people's lives. In the travel market there are two major classifications of travel purpose, these are business and leisure. Business travelers usually have a higher need than want to travel, as it is important for their jobs. They do not have to pay for their travel costs and often travel under short notice. This segment includes regular business travelling, business travel related to meetings, conventions, and congresses, and finally incentive business travel. Leisure travelers usually have a lower need to travel and a much higher want or desire to. They pay for their tickets, and usually agree to plan their travelling well in advance in order to get a better price. This segment includes family and get-away travelers, adventurous and educational travelers, and gamblers and fun travelers.

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