Microeconomics and the Airline Industry

Macroeconomics and the

Airline Industry

Nichelle Shadinger

Rasmussen College

Author Note

This research is being submitted on June 14, 2011, for Marlo Chavarria’s G203/ECO2013 course at Rasmussen College by Nichelle Shadinger.

Macroeconomics and the Airline Industry

Airlines depend greatly on the health of the U.S economy because the economy affects air travel by business and consumer passengers. Many areas of the economy affect the airline industry; Areas such as, shifts in supply and demand, deregulation, fiscal and monetary policy, unemployment, and inflation.

Shifts in the supply and demand curves for the airline industry have changed significantly. The demand curve has gone up because the supply curve has gone down. For example, many Airline companies have closed and/or have gone bankrupt, many of them blaming higher fuel costs (Associated Press, 2008, para. 6). Many of the existing airline companies have reduced the amount of flights that they book. This creates a lower supply with a higher demand.

Another example in the shift of supply and demand in the airline industry is the cost of the fuel itself. In January of 2011 the total cost of fuel consumption for domestic and international service was $3,665,700,000, and in February of 2011 the cost was $3,519,300,000 (“Fuel Cost and Consumption,” 2011). These examples show, while fuel costs have risen, the amount of fuel spent went down. This is due to the reduced amount of flights. Jet fuel prices have increased more than 20% in the first two months of the year alone, according to the Air Transport Assn., the trade group that represents the nation's largest airlines (Martin, 2011, para. 3).

The Airline Deregulation Act of 1978 dismantled government control over airfares and services. It now relied on competitive market forces to determine the price, the quantity, and the quality of domestic air service (“Airline Deregulation Act of 1978,” 2011). The only thing the government maintains...