Supply and Demand Analysis

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Running Head: CURRENT MARKET CONDITIONS PAPER

Current Market Conditions Paper
University of Phoenix
ECO 365

Current Market Conditions Paper
In this paper Learning Team A will explain how Delta Air Lines (Delta) has been affected by the economy, giving details about the positive and negative externalities as well as the shifts in price in elasticity of supply and demand. We will discuss how quantity demanded and quantity supplied has changed due to price changes and technology innovations. We will discuss how government regulations create surplus or shortage of airline flights. Supply and Demand Analysis

Delta is the one of the major airlines of the United States that carries cargo and passengers. Opportunities for Delta in terms of equipment are highly advanced and are constantly improving. Demand for leisure travel and the global nature of the airline industry encourage Delta to enter further strategic alliances that offer a range of measures to be taken into consideration to provide a flawless global network to be present in all major markets. Delta offers a variety of services for customers, such as online product information, fare information, flight booking, and daily flight schedules. The airline industry is an unstable industry because of various factors. One such factor is that airlines are highly dependent upon current market conditions. The passengers’ reasons for travel contribute to instability of the airline industry. Various events such as increased oil prices, terrorist attacks, and inflation significantly have changed the demand for travel through the years. Typically, passengers travel for either business or pleasure. The airline industry is elastic because leisure or vacation travel is more price sensitive (Business Travel News, 2008). Business travelers still contribute to high demand for airline travel, however, with improved technology and a global recession; a portion of the business travel has been eliminated or decreased to conserve spending. The equilibrium for airline tickets from Atlanta to Orlando fluctuates greatly due to changing demand for flights, which will affect the pricing for airline tickets. The supply is based on Delta’s flight schedule for a specific day: On December 20, 2009 Delta offers 17 flights between Atlanta and Orlando; each Boeing 757 aircraft holds 183 passengers for a total of 3,111 available passenger seats (Delta, 2009). The closer the travel date is, the more the airline monitors the price for specific flights to ensure that all flights are full. Delta factors in a no show rate of passengers, which can lead to involuntary denied boarding of passengers. During the fourth quarter of 2008, 1.10 per 10,000 passengers was denied boarding due to overselling of flights (DOT, 2009). Factors That Determine Changes in Supply of Demand

Delta’s ticket sales fluctuate due to current market conditions, such as fuel cost, global economy, and terrorism threats. Available substitutes also have an effect on supply and demand of airline tickets. Once potential customers check the ticket cost on Delta for a given flight, they may consider alternative transportation means, such as discount airlines, cars, trains, or busses. The Internet has contributed to increased competition among airlines and substitutes. Websites, such as expdia.com and Travelocity.com, allow passengers to shop for the lowest price available. Depending on the purpose of the travel potential passengers might decide to postpone their travel or to cancel their travel plans. Telecommunications has developed into another substitute for Delta because of video conferencing, its ability to offer webinars, and other electronic services. The terrorist attacks of September 11 decreased the demand of airline travel as well. The Bureau of Transportation Statistics (BTS) reports that the events of September 11, 2001 caused more passengers to fly low-cost airlines, resulted in...
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