The Economic Factors that Help Explainining the Expansion of Low-Cost Research Paper

The economical Factors that Help Explainining the Expansion of Low-Cost Airline Carriers - Research Paper ExampleAccessibility of alternative modes of send off that are rationally close substitutes for look transportation diminishes with distance run shortled. Globalization and free movement of swap and people between and within regions have a positive effect on air croak demand. Business travel marketplace consists of time sensitive passengers therefore, these customers are damage inelastic in wrong of fares. If the airline firm offers full(prenominal) quality service to this market segment, such as frequent and genuine frights, tractableness, comfortable seats, and excellent, frequent flyer programme rewards, business pattern customers will be willing to reach high prices (Junwook, 2011). However, with the introduction of scurvy cost airlines the price elasticity of this business class market has changed and they appearance price elasticity. In previous years, airli ne industry relied heavily on business travel market as a major source of profit, however, this trend has changed, and the industry has noted that a higher destiny of passengers considers price over service. Business class customers are willing to give up luxuries, food quality, flexibility or choice in return to lower prices. According to Rosario & Eddy, 2010, the economy travel market is mostly determined by the costs being charged by the airlines they are price sensitive. The first class air travel market does not generate much profit to the airline industry, as a result, many airlines are moving from three to a two-class cabin. The levels of consumer income influence the passengers choice of the air travel class the choice of consumers with high levels of income will differ with those of consumers with low levels of income (Bijan, & Tom, 2008). The demand for leisure travel is influenced by the number of independent holidays and short term breaks in this market passengers book flights, accommodation and railway car by themselves. According to Airport International, the changes in demand of leisure travel indicate that customers are expecting and preferring low fares. Low fares in this market segment are the main stimulus for growth in sumptuosity travel, and passengers are willing to change destination for fabulous deals. According to Susan, 2009, the prices of air tickets are largely influenced by the fuel prices, the exchange rates, and the costs of financing airline projects. High costs of financing, unstable exchange rates, and high fuel prices lead to high air fares. Other natural calamities, such tsunami and earthquakes among others results to decline in touristry and business travels thereby, affecting the air travel demand in the affected areas (Roger, 2008). The following diagrams and tables show the set up of fuel prices on operating costs of the airline industry. Prices of air tickets are determined by the price of fuel fuel price is influe nced by the prevailing economic conditions such as the exchange rates. intentness Fuel Costs and Net Profits. Source Industry Financial Forecast Table (IATA Economics). Fuel electrical shock on Operating Costs Year % of Operating Costs Average Price per Barrel of sodding(a) Break-even Price per Barrel Total Fuel Cost 2003 14% $28.8 $23.4 $44 billion 2004 17% $38.3 $34.5 $65 billion 2005 22% $54.5 $51.8 $91 billion 2006 26% $65.1 $68.3 $117 billion 2007 28% $73.0 $82.2 $135 billion 2008 33% $99.0 $88.9 $189 billion 2009 26% $62.0 $55.4 $125 billion 2010 26% $79.4 $91.0