Low cost airlines vs legacy carriers in today market it is for a Term Paper

Low cost airlines vs legacy carriers in today market it is for a mircoeconomics class - Term Paper Example What legacy carriers failed to understand in the past is the combined efforts by low cost carriers to introduce cheap tickets and short flights. However, from an economic point of view, this can be explained using economics of scale, many cheap, short flights incur less costs than a few costly, long flights. Therefore, the logic behind the low cost airline strategy is to cut operational costs and increase service revenue (Huse and Evangelho, 2007). With the current economic downturn, the strategy utilized by low cost airlines is finally beginning to take shape, the executive decisions to hem down costs by engaging in short haul flights are reducing costs by a big margin, resulting in the ultimate profitability of the industry. In the current market, the influx in online booking and the increase in the services offered by an airline have completely changed the airline industry; services like high-seat density, package delivery, flight insurance and baggage charges have served to increase the revenues for low cost airlines. The graph below shows the change in economic niche of legacy carriers and an example of a low cost carrier, Southwest airlines (Adapted from Neal and Kassens-Noor, 2010). This discussion has focused on the cost cutting factors and success of low cost airlines in the industry. Due to this success, some legacy carriers are trying to get in the low cost industry market (Bowerman, 2011). However, the question is; will the market serve both the low cost carriers and revamped legacy airlines? The answer to this question is no, as discussed in the following analysis. The assumption that all carriers will achieve profits if they engage in low cost business is based on the economic principle of ceterus paribus, meaning all things equal (Miller, 2005). However, in the airline industry, not all things are equal, because for the low cost industry to survive there must be legacy carriers against

National Economic Policy (macroeconomic) Essay Example | Topics and Well Written Essays - 1250 words

National Economic Policy (macroeconomic) - Essay Example The volatility in the spending of the consumers can be influenced by the volatility in terms of trade. After the middle of 1980s Australia has been subjected to less volatile terms of trade. The terms of trade is correlated with economic growth. The terms of trade rises when the economy is experiencing growth while the terms of trade takes the declining curve when there is no such progress in the economy. Question a The terms of trade consists of two prime components namely the world prices of the exports and imports and the goods variety that are offered to the consumers. Australia has been regarded as the country that has the potential to affect the global pries of the goods. The recent developments within the geographic boundary of the country can influence the terms of trade. Australia is net exporter of coal and therefore the rise in the global prices of coal compared to with that of other ICT goods will impact to raise the terms of trade. The terms of trade shares close correla tion with the prevailing exchange rates of the economy. The financial crisis in 1990s led to reduction of the nominal exchange rate. The regional influences can play a part in volatility of the import prices while the prices of exports are influenced only by change in global prices. In short period of time the imports prices fall more rapidly than export prices. The unstable productivity growth in either in tradable or in non tradable commodities sector contributed in boosting the exchange rate. The sectors of finance and insurance and some other sectors experienced rapid productivity growth after the decade of 1980s. The second factor that can be accounted for is the strengthening of the U.S. dollar which was driven by the inflows of capital. The exchange rate therefore remained lower than the fundamental levels in the short time span. The less volatility in terms of trade played a part in keeping the economic growth more or less at the stable state as well as contributed in mainta ining the rate of inflation at lower levels. The terms of trade followed the upward rising curve after 2000 (Department of Foreign Affairs and Trade, 2011). Australia turned away from relative price impulsive properties towards more predictable exports of goods over the last fifteen years. The country now involves itself in export of wider range of rural goods. Vegetables, dairy products constitute the other varieties of exports and exports of such commodities have risen in due course of time. Question b The factors that have the potential to influence the terms of trade are as follows: The global demand fluctuations The commodity market shock Globalization shock The first shock and the second shock play their part in driving the prices for exports while the third shock raises the total productivity of output and at the same time reduces the import prices. The terms of trade line gets shifted as the exchange rate offer surplus to the external shocks. The demand shock will influence the inflation to rise up but the impact is expected to be felt only in the short period of time as the rates of interests are high enough and the real exchange rates appreciates. The IS and the LM curve forms the Mundell-Fleming model. The GDP of any economy is the sum of consumption, investment, government expenditure and net exports. The net exports are the difference between imports and exports. The LM curve uses the following