The Airline industry is first of all a service industry dealing with transport service. It is a seasonal industry that is highly labor intensive and also capital intensive. The labor and capital intensiveness’s is directly proportional to the season at high season, more labor is employed and it need more capital in terms of fuel, equipment and staff while at low season it requires less of the same.
The seasonality of supply and demand in the industry causes the industry to have quite an unstable income and so are the pricing rate variable depending on the season at high season, rates will be higher to travel and transport using air while at low season rates will be lower. Thus the GDP contribution by the airline industry to a country is variable depending on the season and the prices at that season.
Pricing in the airline industry:
Airline industry is very much capital intensive for a start in terms of equipment and facilities needed to have the industry up and running. Thus a huge investment is set aside as starting capital for effective operation. In this case, some of the equipment may be leased to lessen the capital cost. This must be recorded in terms of revenue so the pricing of the industry in also high.
Labor as an input is also quite used up in this industry considering labor is dynamic, this industry is labor intensive in building up, machinery maintenance and constant service to the clients.
All airlines have a break –even cost factor which is the number of seats in percentage of the number of seats the airline must sell at a given rate for it cover its costs. This is what takes care of the seasonal nature of the airline industry. Revenue costs and the break –even load factor are not equal in all airlines. It is averaged that the recent approximate breakeven load factor is at 68%. The operating cost of an airline and its breakeven load factor has a very small difference margin making the industry a risky one in terms of profit and loss. In organizing its profits and revenue benefits, airlines have to put into consideration fuel cost, labor cost and machinery cost then execute it in the pricing of the flight cost.
Pricing in the airline industry can be affected by the its seasonal nature but it does not mean that at low demand the airline is pout of business but rather that they have to plan their schedule in accordance with the demands of their services. In the case of too few passengers, it may seem as a crisis but the industry has its clients at their best interest so they would have to give the same service but have their priorities set out well like maybe have a smaller airplane than normal.
Related Economics essays
- Globalization Tendencies to Negative Effect on Culture Diversity
- Perfectly and Imperfectly Competitive Markets
- A Case on Opportunity Cost with Budget Constraint
- Cost of Living in Hong Kong
- Foreign Exchange Rate and Commercial Banking
- Coca-Cola India
- Social Calculation for Economists
- Accounting Career
- Data Work With Excel
- Persuasive Message and Analysis