Factors Affecting Airline Carriers

Submitted By Xuejing-Zou
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Pages: 6
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Introduction
In the recent years, the development of the airline industry has being presented a downturn and weak condition, because of the global economic crisis and other reasons like shockwaves from the spring 2011 Japanese earthquake, the Arab Spring and the steadily deteriorating global economic outlook. In order to stimulate the consumption on air-travel, many airlines begin providing low-cost airline carriers to passengers. Meanwhile, many passengers now appear willing to sacrifice luxury for cheaper flights. Based on the above phenomenon, this essay aims to offer some economic factors into the determinants that help the continued expansion of low-cost airline carriers.

Main body
Factors affecting the demand for air travel
·The ticket price
As low-cost airlines, there is no doubt that cheaper ticket prices will be the most effective way to help attract more passengers and the continued expansion of airline carriers. This can be illustrated in a movement along a demand curve and can be compared with the traditional airlines. When the ticket price changes from P1 to P2 (P1>P2), there is an increasing trend presenting in the ticket quantity (Q1<Q2). In other words, a decrease in ticket price will lead to an extension of airline demand (A<B).

·Household wealth
When the ticket price remains unchangeable, the demand will also be affected by other factors, for example, the household wealth. When people have more money, they are willing and able to spend their money on travelling for leisure. Demand for air travel may shift outwards when household wealth increases while decrease household wealth may shift the demand to the left. An demand curve shows below for explaining.

·Consumer preference
Low-cost airline is an airline that offers transportation services at lower prices and short-haul flights in exchange for the elimination of many services provided by traditional services. Providing short-haul flights is another advantage for low-cost airlines to expand their market share. As for customer preference, some passengers just care about the flight speed rather than other additional services. There is a bar chart as evidence can illustrate that those airlines which can provide short-haul flights are developing rapidly. From the data, we can see that passenger numbers increased 8.3% in the second quarter to 2.58 million and short-haul passengers increased 8.6% to 2.34 million and long-haul by 4.8% to 241,000.

Aer Lingus passenger numbers (000): 2Q2009-2Q2011

The concepts of elasticity of demand
·Customer income
The income of passengers is a major variable that affects the elasticity of demand for air travel. The consumers with lower income are more likely to reduce their demand for air travel than those with higher incomes. Low income consumers are also more likely to change their demand patterns during the economic recession. For example, they may reduce the demand for long-haul flights and increase the demand for short-haul flights as they choose the destinations for their holidays closer to home. High income consumers are more likely to maintain their demand levels regardless of price increases, economic crisis or other factors.

·Seasonal variations
The elasticity of demand for airlines is also affected by seasonal variations. It seems that people are more likely to go travelling by air in summer holidays. The diagram below fully illustrates that the demand of airlines in July and August is great and the figures of passenger traffic in these two months period three years from year 2009 to year 2011 are always be in the peak. We can also observe that the demand of airlines in February is always the least.

Croatia Airlines monthly passenger traffic: Jan-2009 to Nov-2011

·Price discount
This can be combined with the seasonal variations. The demand for leisure travel is largely influenced by airline ticket price reductions or discount. The leisure travel segment consists of looking for bargains in the period of
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