Introduction
Airline industry is a big, competitive, and challenging industry, characterized by high capital and labor requirement, together with customer participation during transactions hence service fulfillment. As the competition in the air services industry is increasing considerably, it is essential for the companies in this industry to adopt new technologies in their system in order not be thrown out of the competition by their rivals. Industry players use different technologies to differentiate their services to customers, to create customer loyalty, and serve them faster and in more suitable ways than their competitors do.
Discussion
The standard consumer expects to pay a sensible price for reasonable services. The current economic status of the United States for some has made it more difficult to find rational rates for any sort of travel. Those who are employed in the travel industry are also finding it even harder to maintain their businesses as well as their capability to provide the services. Several factors contribute to the ongoing struggles this industry faces.
If the price of an airline ticket is low, this usually means that there is a surplus of seats, rooms and so forth available on a particular time frame. In turn this encourages an increase in the demand for travel. (Vigeland, 2006) If the cost of a ticket is high it could mean that there is less available space as a result the demand could be lower.
In addition to these concerns, travel suppliers will also have to adjust to competition meaning that companies who offer a competitive edge to travelers are able to attract more business. Competition affects pricing since it gives the customer other options and allows them to shop around for the best deal or lowest price. “The elasticity of demand is greatly affected by the customer’s purpose for travel.” (Jerram 1999) On average most airline customers who travel frequently are usually flying for business. Through modernism and technology, many businesses have eliminated business travel in order cut costs.
The airline industry is elastic which means the more the economy fluctuates the more it determines how people will travel. When things are good there is an abundance of travel deals to take advantage of. (IATA 2008) When things are slow, offers are being sold at higher prices to compensate for low sales earnings. A large portion of the revenue is dedicated paying the costs such as fuel and labor for many travel suppliers.
Customers have also begun to explore substitutes in order to meet their travel needs and wishes. One emerging option would be more domestic US travel as opposed to international. Domestic travel is less expensive and requires less travel time compared to international. (IATA, 2008) Other substitutes include traveling by train, car, or avoiding travel whenever possible.
Negative and positive externalities find out supply and demand in the travel industry. The negative externalities associated with the current state of travel include the increase in rates for the traveler. Many suppliers such as the airlines and cruise lines are increasing their fairs to compensate for their low sales profits. (Dillon & Nickerson) A positive externality to the traveler would an increase in their ability to find available space at their desired destination as long as they are willing to pay for it.
Many people noticed a declining trend in travel after the 9/11. This occurred mainly due to security concerns. When there is a huge increase in fares it absolutely interferes with the demand for travel and causes the price of tickets to continue to rise. This is a clear connection with the impact of supply and demand. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the propensity to travel more.
The airline industry plays an important role in globalizing our economy and the market is strongly dependant on the airline industry. (Dillon& Nickerson 2003) The rise and decline in fuel costs is another negative externality that affects the airline industry.
The luxury to journey is a common good. There only a selected number of seats available on a plane or cabins available on a cruise ship. When a consumer purchases or makes travel plans that will leave one less seat or cabin available to someone else to buy.
The travel industry is often categorized as uneven. When the consumer is fearful to travel especially after a nationwide tragedy, for example 9/11, the travel industry suffers huge financial losses. In addition, 9/11 especially impacted wages in the industry. Many companies were forced out of business or in to bankruptcy.
Airline industry workers began to seek higher paying jobs since commissions were no longer pouring in. Travel agents were not the only ones affected. People who work with the hotels, airlines and cruise lines also suffer from wage disparity. (FRBSF 2004) Many of these jobs are unionized which is quite different from the business model of a true travel agency. The owners of hotel chains, airport and cruise lines are not capable to afford to pay wage increases because they rely heaving on people spending money on the luxury of travel.
Studies show that wage inequality in the airline industry contributes to high attrition. Wage inequality is determined by comparing how much a worker is earning against the cost of living where the person is employed. In an attempt to control wage inequality, many states introduced a living wage ordinance. (ACORN 2004) The industry has benefited from living wage legislation because the wage increase encouraged a decreased turnover rate, and a rise in workers’ effectiveness. (Zabin 2004) Another issue that affects the travel industry is the rising cost of fuel. All travel in some way relates to air travel, whether its resort travel or cruise travel. The government charges higher fuel taxes. This will cause the airlines to pay more for fuel. The rising cost of fuel also increases the cost of airfare. (Maxon 2008) This one event causes a chain reaction. Higher airfare makes people want to travel less. Less air travel makes the airline send out fewer flights. Fewer flights require less staff. Many airlines are proactively scaling back in order to stay afloat.
The airline industry plays a key role in globalizing our economy and the market is strongly dependant on the airline industry.
Monetary, fiscal, and federal aviation policies practiced in the industry were greatly impacted by the tragic events of 9/11. The affects of the disaster still live on today through monetary policies introduced from the disaster in addition to the increased security. (FRBSF 2004) After the 9/11 incidents there was a decline in demand and the base-ticket prices increased, along with added taxes. Within the industry workforce was hit with record layoffs. This slump caused many airlines, hotel chains and travel agencies to go into bankruptcy as they where not able to generate enough business.
Since that time the US government has continued to tack on extra fees to tickets increasing the base price dramatically. When these fees were first implemented it was difficult for many travelers to accept the extra charges but over the time customers have come to understand the purpose of this new policy. (Button 2005) “The funds raised through this September 11 Security Fee will be used to implement new aviation security measures to help achieve this most important goal” (Mineta, 2001.) The airline industry is continually impacted by current market trends, and externalities. All trends market trends have an impact on the airline industry, when the airline industry is hit directly it affects changes in the market. (Jerram 1998) Because the industry heavily depends on the market, many travel businesses fail to survive when hit with constant negative externalities. Positive externalities allow the industry time to make adjustments and develop backup plans for the next economic crisis. However, vulnerabilities are not realized until a disaster takes place.
The elasticity is determined by competition, which can come in all forms such as cars, planes, buses, boats, and trains. In the current market the base price per ticket can raise or lower noticeably depending in the situation. When a crisis hits, the travel industry is directly targeted. If businesses do not learn from past events and develop a plan to adjust, it will continue to harm the industry. Many businesses will be bankrupt and jobs will be lost as a result of the drop in demand. (Joyce 2006) Overall, travel for many is a luxury that overtime has been a necessity. Many people become accustomed to taking a vacation once a year. Overtime, people build it into their lives and plan family trips, weekend getaways, and vacations with friends. Despite the financial ups and downs most hardworking consumers will not be swayed from their travel plans. Whether the obstacle is the of rising costs of fuel, concerns around supply and demand or even the next unexpected tragedy, people will still find ways to go on fly, drive or cruise even if they have to be creative in their approach.
Providing great reach and the potential for rich interaction, the internet is a natural medium for travel transactions. Airlines are turning to e-commerce to keep business flying, and the reason they are focusing on selling tickets through their websites is that it is the cheapest distribution channel.
From the customers’ perspectives, Internet has given a revolution to the way of buying tickets. Customers can now purchase their tickets directly from the airlines via the Internet using intermediaries in order to find the possible cheapest ticket.
Moreover, online discount travel services, such as Priceline and Hotwire, allow airlines to dump excess inventory. They can use these channels, along with their own online specials, to drive traffic to less-popular routes, such as flights with difficult connections. Airlines are also using electronic channels to keep business travelers informed of potential delays and schedule changes.
Furthermore, airline industry players use different technologies to differentiate their services to customers, to create customer loyalty, and serve them faster and in more convenient ways than their competitors do. Therefore, airline companies have developed some tools to communicate with their customers as in-flight broadband service and new mobile service.
Conclusion
Airline industry is moving into an environment characterized by an abundance of information – the new source of airfare information is the Internet, especially the WWW. Therefore any player in this industry needs to produce informative materials in digital form, which can be disseminated using the new information technologies.
References
- Association of Community Organizations for Reform Now. Recent Policy Initiatives to Raise Low Pay. (2004).
- (2002) Economic Letter. Web.
- Button, K. J. (2005) Airline Taxation.
- Jerram, R. (1998). The Airline Industry.
- Joyce, A (2006) Hotel Workers Union Starts Wage Campaign.
- Maxon, T (2008) Airlines trim growth plans as fuel costs rise.
- Nickerson, N & Dillon, T (2003) Travel Industry Economic.
- Vigeland, T (2006) Cost of air travel taking off.
- Zabin, C (2004) The Wages and Self-Sufficiency of Unionized Hotel Workers in San Francisco.