The Profits of Airlines
By: Joe Porter
In America , there are many opportunities to prove your knowledge and make yourself rich. Starting back in the early 1900’s with the big coal companies, steel companies, and oil companies rising to the top, there has been an outburst of wealth that these monopolies dictate through our country. The one major monopoly that still is thriving in today’s down turn economy is the airline. There will always be an aggregated demand for flying in America , along with an aggregated supply that constantly stays in the long run equilibrium.
The economic profits that airlines encounter are up with the profit of companies who make billions such as Exon or Mobil oil companies. According to the economist “The International Air Transport Association (IATA) said this month that it expects industry profits to hit a record high of $19.7 billion in 2014.” This increases 50% from 2013’s 11 billion made. No matter the price of gas going up the demand will still be at equilibrium and since the demand for both gas and airplanes, two complimentary goods, both will encounter an exceeding economic profit. As shown in the graph below, airlines have somehow come out of this economic down turn and are now on the uprising in profit.
This youtube video shows how airline profits were able to take off from 2010 to current projections. With the downturn in the economy the fiscal policy would be to cut taxes both state and federal and increase government spending. Thus, allowing airlines to increase ticket prices for flying which increased their revenue and with the unemployment rate rising this allowed for airlines to cut some loose ends and save even more. But the real economic question is, is what are they doing with all that resource?
According to la times “airlines will invest in roomier seats, tastier food, and better entertainment systems….that would enable them to offer pricier seats.” This going along with what has been said before with aggregate demand being constant thus sticking with changes in price level shows the amount of control a monopoly like the airlines have. According to Business and Money “Airline profits are expected to soar to a record high in 2014 as companies cut costs, fuel prices drop and passenger demand rises.” Airlines are also doing good to the economy, through their success they are raising the GDP, cutting out some of those lost taxes that the government has to endure from the recession, and overall controlling the market prices to make it less risky.
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