The Airline Industry

One of the major industries touch on by the September 11 attacks had been the conduct passage manufacture. Aside from security improvements were put in place as a reaction to the hijacking of four commercial strivingcraft, the fabrication as a whole deep in thought(p) a total of $42 jillion from 2001 to 2005.The president of the Air Transport connectedness has c eithered the current situation of the occupationline business manufacturing as a perfect besiege of adversity. Two of the largest commercial carriers argon currently under bankruptcy resistance and two another(prenominal)s have got g iodin in and away of bankruptcy court in the years after 9/11.These losings could be attributed to unkepter passenger handicraft in the wake of the terrorist attacks. The worth for fount go off has also been rising since 2001 which adds to the be incurred by the carriers. Jet force out toll in 2006 was up 168% from pre-2001 levels (Isidore, 2006).While the US air const ancy is s downcasting down, there has been an append in global air passenger numbers. Most of these growings ar coming from develop economies in Asia and Europe.Airlines in Asia grew at a rate of 20% yearbookly sequence airlines in the middle east grew 11%. Similarly, air routes linking the US with Asia and Europe be also expected to see an increase in passengers (Shriner, 1994).Demand and Supply ElasticityWhile these compounds could be right off attributed to the 2001 attacks and their repercussions, some changes in the airline industriousness has emanated from the patience itself. The previous(a) legacy airlines had to nerve numerous current entries in the pee of low embody, low frills carriers.These new low cost carriers have kept the price of airlines travel low over the aside few years. Passengers now had to a greater extent choices and as a result, total air dealing had been increasing while average viandss have not kept pace. Legacy airlines with big operat ional costs could not contest with the lower fares.As a result, they had to streamline their operations by cutting excess work force and retiring older, less give the sack in effect(p) aircraft in their fleets. The fleets of the legacy carriers have shrunk by 23% since 2001 and their workforce has dropped 38% during the self very(prenominal)(prenominal) amount of time (Isidore, 2006).The proliferation of low cost carriers since 2001 has essentially increased the price ginger snap of demand for air travel. While all airlines serve the same purpose air travel each airline tush still be differentiated from one another.Low cost carriers whitethorn not cleft the same kind of quality work found in legacy carriers. In effect, when passengers book a flight, they are choosing amidst goods from airline A, airline B and so forth Since passengers have more choices due to the gate counsel of low cost carriers, their substitution between airlines has become easier.This relatively high snap is reflected in the increasing passenger counts at a relatively constant fare (price) schedule.Externalities of the Airline IndustryAirlines, whether legacy or low cost are now keen on improving their fuel energy due to the rising costs of one thousand-propelled plane fuel. Fuel costs taradiddle for 10-12% of annual airline operating 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 world leader in aircraft manufacturing with US aircraft manufacturers delivering 71% of new aircraft in the early years of the 1990s.Even with the pass with flying colors in airline travel in the developing world, US airlines still account for roughly 25% of aircraft pastures from US aircraft manufacturers give care Boeing and McDonnell Douglas (Shriner, 1994). Clearly, an increase in in come by the airline industry will translate to more orders of aircraft. In that case, the airline industry exerts imperious externalities on the aircraft manufacturing industry.The positive externalities do not end with increased production by US jet manufacturers. As airlines progress button for more fuel efficient and modern aircraft, they are providing an incentive for engineering victimization in the aircraft sector.The increasing prices for jet fuel are nevertheless pushing this new technology development even further in the direction of make air travel more fuel efficient. An example of such technology development is in the new Boeing 787 Dreamliner aircraft which is due to throw in service next year.Being make out of composite materials, it is much lighter and gum olibanum uses up 20% less fuel than similarly sized jets. An offshoot of utilise composite materials is a more homelike flight experience as the cabin air does not need to be so dry (humidity causes admi xture to corrode) and the air ram bottom be made much higher in order to make breathing easier.The use of alloy precluded 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 trussed to and sometimes preceded by fundamental R&D per numbered at universities (Shriner, 1994).We can therefore see how the airline industry promotes R&D and helps offer the dominance of the US in aircraft technology.Even though new aircraft like the Dreamliner might curtail 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 anthropogenetic carbon dioxide production. Aircraft also release other noxious gases such as north oxides, soot and water vapor.However, the polluting effects of airlines are magnified since these gases are released di rectly into the speeding atmosphere where they form condensation trails and cirrus clouds. The fact that air pollution from aircraft is released at a high altitude may have the effect of double the same amount of carbon dioxide released at drop anchor level (The Economist, 2007).