The Airline Industry

One of the major industries affected by the September 11 attacks had been the flight path sedulousness. Aside from security improvements were put in place as a response to the hijacking of four commercial impartcraft, the industry as a whole lost a total of $42 one thousand million from 2001 to 2005.The president of the Air Transport Association has called the current situation of the dividing lineline business industry as a perfect storm of adversity. both of the largest commercial carriers are currently under bankruptcy protection and devil others pass water gone in and out of bankruptcy court in the years after 9/11.These losses could be attributed to level passenger traffic in the wake of the terrorist attacks. The price for jet sack has worrywise been rising since 2001 which adds to the salutes incurred by the carriers. Jet fuel price in 2006 was up 168% from pre-2001 levels (Isidore, 2006).While the US personal line of credit industry is slowing down, there has been an ontogenesis in global air passenger numbers. Most of these accessions are glide path from maturation economies in Asia and Europe. skyways in Asia grew at a rate of 20% annually while airlines in the middle east grew 11%. Similarly, air routes linking the US with Asia and Europe are also expected to experience an increase in passengers (Shriner, 1994).Demand and Supply ElasticityWhile these changes could be directly attributed to the 2001 attacks and their repercussions, some changes in the airline industry has emanated from the industry itself. The older legacy airlines had to face numerous newly entries in the form of low cost, low frills carriers.These new low cost carriers have kept the price of airlines travel low over the last(prenominal) few years. Passengers now had more choices and as a result, total air traffic had been change magnitude while average fares have not kept pace. Legacy airlines with larger operational be could not compete with the lower far es.As a result, they had to streamline their operations by cutting excess custody and retiring older, less fuel cost-effective aircraft in their fleets. The fleets of the legacy carriers have shrunk by 23% since 2001 and their workforce has dropped 38% during the same amount of quantify (Isidore, 2006).The proliferation of low cost carriers since 2001 has essentially increased the price elasticity of carry for air travel. While all airlines serve the same purpose air travel each airline can still be identify from one another.Low cost carriers may not offer the same chassis of quality service found in legacy carriers. In effect, when passengers defy a flight, they are choosing between goods from airline A, airline B and so forth Since passengers have more choices due to the introduction of low cost carriers, their surrogate between airlines has become easier.This relatively high elasticity is reflected in the increase passenger counts at a relatively constant fare (price) s chedule.Externalities of the Airline IndustryAirlines, whether legacy or low cost are now bewail on improving their fuel competency due to the rising costs of jet fuel. Fuel costs account for 10-12% of annual airline in operation(p) costs. One way that airlines are trying to improve fuel efficiency is by retiring older aircraft with poor fuel efficiency (May, 2003).One industry that is intrinsically linked with the airline industry is the aircraft manufacturing industry. The US is a knowledge domain leader in aircraft manufacturing with US aircraft manufacturers delivering 71% of new aircraft in the primordial years of the 1990s.Even with the boom in airline travel in the developing world, US airlines still account for roughly 25% of aircraft orders from US aircraft manufacturers like Boeing and McDonnell Douglas (Shriner, 1994). Clearly, an increase in income by the airline industry will record to more orders of aircraft. In that case, the airline industry exerts tyrannical externalities on the aircraft manufacturing industry.The positive externalities do not end with increased production by US jet manufacturers. As airlines keep pushing for more fuel efficient and modern aircraft, they are providing an incentive for technology teaching in the aircraft sector.The increasing prices for jet fuel are even pushing this new technology development even further in the direction of making air travel more fuel efficient. An example of such technology development is in the new Boeing 787 Dreamliner aircraft which is due to enter service next year.Being make out of building complex materials, it is much lighter and thus uses up 20% less fuel than similarly sized jets. An offshoot of victimisation composite materials is a more comfortable flight experience as the confine air does not need to be so dry (humidity causes surface to corrode) and the air pressure can be made much higher(prenominal) in order to make breathing easier.The use of metallic element pre cluded using higher cabin pressure as it may accelerate metal fatigue (The Economist, 2007). It is important to note that this externality does not end at Boeing. Advances that Boeing are making are sometimes tied to and sometimes preceded by fundamental R&D performed at universities (Shriner, 1994).We can therefore see how the airline industry promotes R&D and helps maintain the dominance of the US in aircraft technology.Even though new aircraft like the Dreamliner might reduce fuel consumption, it still does not change the fact that the airline industry has a huge externality in the form of pollution. Aviation is responsible for 2% of anthropogenic degree centigrade dioxide production. Aircraft also release other noxious gases such as nitrogen oxides, soot and water vapor.However, the polluting effects of airlines are hypertrophied since these gases are released directly into the upper atmosphere where they form condensation trails and cirrhus clouds. The fact that air pollution from aircraft is released at a high tiptop may have the effect of double the same amount of carbon dioxide released at ground level (The Economist, 2007).