Introduction of Airline Industry Microeconomics

For any country, the airline industry plays an extremely important in the economy. The contribution of this industry is able to change the economic structure of any company. In that report, there is complete information about the airline industry microeconomics and their main issues. This report is discussing the industry condition in the USA. If any country wanted a huge advancement in economic development, then it can be possible when their airline industry is in better condition.

The contribution of air transport in the USA

.           From the information, it can be noted that the contribution of air transport is extremely high in the economic development of any country. The reason is that it is only enabling passengers to move from one place to another. Now it can be noted from the data of the IATA the global air is contributing about more than 50% in the economy of the country and also its GDP value. Now, this value is increasing on an annual basis that gives a clear completive edge in the GDP value of the USA (Kaps & Ruiz, 2018).

A different model of the airline business

In the USA, this business is one of the biggest ones because it creates a comprehensive network and cost structure. For operating this business to a successful height, this industry is using different legacy carriers that are operated through a hub that can create a very useful networking structure. There are also some low-cost carriers that are operated through different point to point model. This model was operated after the deregulation in the US airline in 1978. Due to this, the US airline has lowered the fare cost and also made traveling at affordable prices. In the USA, there some airlines that are using point to point models. This model was firstly used by the Southwest Airlines Corporation. This model was used by such companies that are using nonstop routes between different places. Through the help of these models, the airline business was upgraded and plays an important role in the economy of the country (Ciliberto, Watkins, & Williams, 2019).

The cost structure of the airline industry of Airline Industry Microeconomics

This industry is extremely selective in creating an ideal cost structure for their airlines. The cost structure of this company was given by the use of spoke and hub business models. But the main problem was that it was adding some complexity in the operation cost. The best cost structure model was presented by this industry, and this model was a combination of the cost-effectiveness and different ranges of routs and services contain by legacy carriers. In the past few years, the gap between the lower-cost carrier and legacy carrier was extremely narrow, and due to this, the cost structure of this industry was suffered a lot.

The mild barrier for entering of Airline Industry Microeconomics

It can be noted that this industry is one of the capital-intensive and highly competitive. Due to this nature, there is one of the huge drawbacks and that is related to the barrier for exiting from this industry, it is extremely high.  As time passes, the competition in this industry is increasing because the barrier for entering is extremely low. This is also one of the huge issues in the microeconomics of this industry. From the information of IATA, it can be noted that there are about 1300 new airlines that were entered in this industry over the last four decades. There is some reason that will give proper information about the nature of competition of this industry (Escobari, Rupp, & Meskey., 2018).

The first main reason is that whenever a new company is entered in this industry, then it is increased. Another reason is that when an existing company is expanding its main services. Moreover, the existing companies are giving a huge benefit to the economy of the country. For aircraft acquisition, the capital cost is extremely high. This cost may discourage the new entrant in the market. But this impact can be reduced by selecting external finance from different means like investors and banks. Furthermore, another thing is that due to these new airlines, the switching cost for the customers is extremely low. This is the reason why existing companies are focusing on the quality of their services. This gave them a competitive edge over the other companies.

In recent years, there is a huge wave of industry consolidation in the USA that is caused by acquisitions and mergers. They become the main victim of reduced costs in different areas. Due to this action, many private airline companies are affected by a great amount. In the supply chain of this industry, there are also other service providers and computer operators.

Supplying of power of Airline Industry Microeconomics

This is also one of the important factors in the microeconomics of the airline industry. The reason is that its supply chain consists of different things that include manufacturers, air navigators, lessors, travel agents, and service providers. There are a lot of difficulties for the new entrants to manage their supply chain in a perfect way. Another factor is that the bargaining power of the manufacturer of the aircraft is extremely high. They are also handling the major factor of the airline company (Chen & Gayle, 2019).

The power of customers of Airline Industry Microeconomics

The bargaining power of the customer is extremely high. The reason behind this is that they have quite huge options for different airline companies. They are able to select according to their demand. This is the reason it is sometimes extremely difficult for the airline companies to find the minimum cost for attracting the customers towards their airlines.

The businesses are affecting the airline industry of Airline Industry Microeconomics

As it can be seen that this industry is involved in moving the customers and cargo from one place to another. From the total revenue, 75% came from the passengers, and the other 8% only comes from the cargo services that are adding together and supporting the GDP structure of the company. However, this industry is mainly affected by different business cycles. This industry is always involved in increasing the operational and customer service for achieving a high rate of profits. The profit of this industry is affected due to a different kind of other business like fuel cost and manufacturing.

Airline industry traffic of Airline Industry Microeconomics

From the information of ICAO, every year, air traffic is increased by the rate of 5.2 %, and it shows a positive growth from the last few decades. Due to this, the airline industry is also involved in giving a high market share. This is because the global passenger traffic increased up to a value of 5.8%.  From the data, it can be seen that the US airlines are the leading airline company in the world.

Conclusion of Airline Industry Microeconomics

Summing up all the discussion from above, it is concluded that the airline industry is playing a major role in improving the economic structure of the country. But with time, there are a lot of issues that are linked with this company, and it is extremely difficult for this industry to overcome. But this industry is finding different means to solve this problem for the future. US airline is one of the best companies in the world due to its high rate of passenger traffic. This rate is increasing every year. This shows that this company is able to remove these issues related to this industry in a proper way.

 References of Airline Industry Microeconomics

Chen, Y., & Gayle, P. G. (2019). Mergers and product quality: Evidence from the airline industry. International Journal of Industrial Organization.

Ciliberto, F., Watkins, E., & Williams, J. W. (2019). Collusive pricing patterns in the US airline industry. International Journal of Industrial Organization.

Escobari, D., Rupp, N., & Meskey., J. (2018). Dynamic price discrimination in airlines.

Kaps, R. W., & Ruiz, J. R. (2018). Educational requirements for a career in airline management: An industry perspective. The Collegiate Aviation Review International.