The elasticity of demand is based purely on current market conditions, the customer's purpose for travel, and available substitutes. While sitting in Atlanta's Hartsfield International Airport, one cannot help but to notice and feel an overwhelming dominant presence of one particular airline. Delta as we know it today, traces its roots way back to 1924. Huff Daland Dusters was founded as the world's first aerial crop dusting organization. In 1928 the company became Delta Air Service, and the following year Delta carried its first passengers over a route stretching from Dallas, Texas to Jackson, Mississippi with stops in Shreveport and Monroe, Louisiana. In 1941, the company moved its headquarters from Monroe to Atlanta, Georgia.
Deregulation of airline industry in US brought many changes to the way the industry operated, which automatically resulted in increase in the number of carriers which specialized in services which were limited to regions and non-stop operations round the clock. These low cost carriers strategy was to purchase older cheaper aircraft and sometimes also operated outside the boundaries of industry wide online reservation systems which many of the larger carriers have implemented effectively. Against the inconvenience caused to the passengers, low fares as compared to the industry standards were offered to the passengers and every now and then new marketing strategies were implemented in order to lure more passengers to use their services on the basis of cost based competitive strategy. This paper also focuses on one of the low cost airline i.e. Delta Airlines and its oligopolistic position in the airline industry. By investigating Delta Airlines, a better analysis of price vs service impact in the airline industry as a whole can be understood and the impacts on travelers and people investing in the organization. Till late 1070s, much of the prices were setup by the government which resulted in price not being a factor of competitive advantage of any airline and airlines tend to compete on the basis of their services and image that they had developed In the mind of their passengers.
As the number of airlines increase, the difficulty of decreasing prices of tickets in order to attract more passengers becomes difficult. This results in very highly competitive battle among the airlines sometimes which have caused major impact on the industry itself. This phenomenon has been a major case as airlines try to cut each other out on the basis of the cost of travel they can provide to their passengers, the minimum the better. These results in shrinking profits and in many cases the airlines go out of business. Finally the Congress realized that many airlines would fail if no change in the pricing policy was made which prompted the development and implementation of the Civil Aeronautics Act in 1938.
The airline industry has an overall elastic touch to its name. The elasticity cannot be considered to be complete as there are two main reasons that need to be highlighted: the business customer against the non-business customer. The demand is quite elastic with respect to the demand. When the price of the tickets increase, this automatically results in the number of tickets purchased decreasing by the same rate. The elasticity is greatly affected negatively when business customers are considered. The concept behind this has been the simple reason that business passengers do not cancel their tickets as the prices are too high. While on the other hand, the ratio of reasons is inelastic as they are not affected by the changing prices of the ticket. They will have to fly even though the prices are relatively higher, adding an inelastic blaze to the product mix. A business can only disregard the price factor only if the business is able to have some tax exemptions to power their pricing policy. This concept of elasticity of demand is crucial as it leads to the cutthroat competition situation where competitors...
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