US Airline Industry
The airline industry is very critical in as far as the US economy is concerned. It ensures that the flow of human capital is ensured. It also ensures that the transportation of perishable goods like fruits and vegetables is done in an effective and timely manner. Airline industry is also important as it ensures that the transportation of vital machinery from one place to the next is done effectively. Being the fastest mode of transport, air transport has been used for various uses like medical purposes as well as security based assignments (Airports Council International, 2002).
This paper aims at giving a comprehensive economic analysis of the US airline industry. Of important focus will be shifts and price elasticity of supply and demand, positive and negative externalities, wage inequality, monetary and fiscal policies and their effect on the industry and positive and negative effects of the economy on the industry. The aviation industry creates employment to a substantial number of people in the Unites States of America. However there have been fluctuations over the years in as far as employment in the airline industry is concerned.
From the month of March through April the figures fluctuated from 507. 5, 504. 5, 502. 7 and 501. 9 in that sequence. According to the 2007 US Bureau of Labor statistics 33 660 people were employed as aircraft mechanics and service technicians, 69 130 as airline pilots, co pilots and freight engineers, 15 500 cargo freight agents, 96 360 as freight attendants and 105 830 as reservation and transportation ticket agents as well as travel clerks. (US Bureau of Labor Statistics, 2007).
The Department of Labor estimated their average annual earnings as follows: the aircraft mechanics and service attendants’ $54 780, flight attendants $36 810 and reservation and transportation ticket agents and travel clerks $ 33 820 while pilots, co pilots and freight engineers earn an annual mean wage of $154 360. The differences in wages can be attributed to the varying expertise and training. In his article ‘Wage gaps large and small’, Hirsh explains how in a competitive market it is not possible to ensure that the compensation or wages are equal even for people in the same job title.
This is attributed to the fact that the role of the unions cannot be underestimated. (Hirsch B, 2008). Unions and institutions are very influential in negotiating for wage increment. There are other factors influencing wage differences or inequality in the airline industry like the issue of imperfect mobility. In his study of how deregulation affected the labor market, Hirsch argues that although the wage determination now shifted the wages did not decline as expected.
The role of the unions in wage negotiations did not subside and it remained significant in ensuring that the wages remained relatively higher. However the unions influence could be minimized by the increasing competition and high fuel prices that are bound to compel the management in the airline industry to negotiate the wages. (Hirsch B, 2008). Card in ‘Deregulation and labor Earnings in the Airline industry. Regulatory Reform and Labor markets’ measures the wage inequality in the airline industry by evaluating the micro data from the current population surveys.
He established that deregulation increased competition in the industry and the consumer costs and the employees’ wages declined. The unions came in handy to negotiate for higher wages to ensure that the employees’ returns did not exceed the opportunity cost of doing business in the industry. All in all the deregulation is thought to have reduced the wages in the airline industry by approximately 10% from what it was in the period before the deregulation was implemented.
Fuel prices have been rising at unprecedented rates resulting into increased costs of operation to the airline industry. The resultant effect of this is that the cost will be transferred to the consumers in terms of raised air fares. High prices will be a disincentive to people to use air transport and this is not good for any economy. According to the Air Transport Association the price of jet fuel has increased by approximately thrice in a span of four or so years. (Air Transport Association, 2007).
Amazingly the cost that airline incur on jet fuel has outdone their labor costs which has over the years been the highest. To resolve this problem the need to introduce modern and effective techniques that will make the industry reduce the amount of fuel consumption is vital. Other relevant issues to be addressed to make the industry feasible include increasing it effectiveness, efficiency, safety as well as its accessibility through affordable pricing. The passenger travel is the most significant in terms of the revenues collected compared to the chartered and cargo based transport.
According to the IATA the year 2006 was a bright year as it recorded a 0. 6 increment in demand. It observed that despite making net losses for five consecutive years since 2001, net profits were recorded in the year 2006. (Air Transport Association, 2007). Increase in the air travel cost affects businesses. It may for instance be uneconomical for a businessman to travel by air to negotiate a deal with a client and he may have to use alternative means of transport like the use of e-mails.