How Economic Factors Affect the Aviation Industry

How Economic Factors Affect The Aviation Industry
In:Monetary Economics by admin
Tags: affect,Aviation,Economic,Factors,Industry
The aviation industry is particularly susceptible to external economic factors because it affects and depends on a substantial number of industries. Also, because the industry involves operating between borders, then economic factors from other parts of the world other than the domestic market also affect it. Issues such as fiscal policies (both within and without the countries of destination), wage inequality and positive and negative externalities have a way of changing operations within this industry.
How shifts and price elasticity of supply and demand affect the aviation industry
Supply and demand price elasticity of airline carriers may vary depending on the nature of the industry. For new and emerging industries such as the Indian aviation sector, then price elasticity of demand and supply is near perfect. The number of carriers being added into their markets are largely affected by the nature of demand for the commodity the country underwent rapid economic growth in the late nineties thus setting the stage for a shift in the country’s business arena. Many people within India had a renewed need for utilizing aviation services because of internationalizing their businesses. This demand for the commodity led to rapid expansion within the sector and increasing numbers of carriers. (Keller & Buttler, 2000)
However in traditionally developed countries such as the US, supply has exceeded demand. Consequently, air tickets go for much lower prices than they should. Besides that, aircrafts are reducing their capacity to cope with decreasing demand for the service. They are even trying to cut down on labor costs so as to cope with this low demand in the service. This also makes it very difficult for new entrants to do well in the industry and severely impedes their success. (Doganis, 2002)

Effect of positive and...