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.
Works
Cited
I agree, it is great that monopolies like these are still finding ways to thrive in this turn down economy! I found your article very interesting because not many people would think about the profits made from the airlines. Going off of your point that demand will stay the same even though prices of gas are going up, it is very true. Since there are not many alternatives to flying (besides driving but not many people would take extremely long road trips for business aspects) the demand will have to stay the same. People need to travel and it is a luxury that will keep making money due to it's convenience and low amount of alternatives.
ReplyDeleteI think it's interesting the fact that one of the most expensive parts of our economy is still able to make a profit. But really, this is no surprise, seeing as though, thousands of people take flights everyday. Although the resources used for planes are rising, they are still able to continue to raise their prices to meet the needs of this, for the reason that the demand for flying will always be high. In this case, there really isn't a convenient alternate, so the plane companies can keep doing what they are doing, and still be fine.
ReplyDeleteThis is an interesting topic Joe, but I don't really know if I would say that the airlines have a monopoly. There are several different major airlines that are all competing for the same customers, and a lot of times, they barely break even on their flights. Jet fuel has become really expensive, so they make a lot of their money on extra costs like baggage fees and food service. They add on all these costs in order to make their ticket prices cheaper and be more competitive with other airlines.
ReplyDeleteThe idea that flight expenses could go up more than they already have is, as a person whose whole family takes a trip every year, pretty astounding. Prices for airline seats are already so expensive, especially with all of the luggage rules they've put into place to attempt to get more money. While I find it ridiculous as a consumer, it seems pretty clever of the airlines to include more luxuries to jack up the price.
ReplyDeleteI don’t think you can refer to the entire airline industry as a monopoly. A monopoly is when one enterprise has total control of the market, implying a sort of scenario similar to the days when robber barons were prominent. With the airline industry as a whole, you can see there are many companies, such as AirTran, SouthWest, Delta, etc, all competing for a cut of the customers. In addition, the economic well being of the airline industry as a whole, isn’t as thriving as it is sometimes made out to be. Not only are the companies dealing with increased fuel prices, but now the companies are dealing with another issue, a pilot shortage, which if unresolved may cause a far worse issue for the already struggling companies.
ReplyDeleteI think it is absolutely insane that airline prices would continue to go up. They are already so expensive and you literally have to scan the websites just to find a reasonable price. The fluctuation in prices is ridiculous and having to skim even more will be such a hassle. I am starting to think that the demand for plane tickets is going to go down because people aren't going to go on near the vacations if plane tickets continue to rise. It's already hard enough to go on vacations eery other year in my family so this is crazy.
ReplyDeleteAt first this entry confused me because when I think of airlines I think of a business that makes absolutely no money and, if anything, loses money constantly. Yes, the demand for airlines is exceedingly high; however, the amount of money that gas, safety precautions, and actual productions of the planes all add up to largely exceed the money made by airlines. The only reason airlines are making money today is because of government subsidies. If these subsidies weren't given to airline industries, they would be in an incredible amount of debt. This would force them to go out of business because if the prices of plane tickets increased drastically, they would lose a significant amount of demand, only forcing them to plummet into even more debt.
ReplyDeleteIt's ironic that the most expensive portions of the economy are still able to make so much profit for their business. And the fact that airline prices are still going up really surprises me. If they keep increasing they are eventually going to lose their customers because no one will want to pay that much. Granted there will still be people who are willing to, most people won't. Airlines compete, so they should want to give their customers a good cost and a good benefit. That would make them more likely to choose one over the other. When people think about what they want, they think about if it's a good cost and a good benefit. So it is good of them to include more luxuries with their expenses. As part of a family of frequent flyers, I would say the best thing for them to do to keep the customers they want is to make sure that they don't go too over priced and still keep their benefits
ReplyDeleteThis is a great article, I never thought about this. This is interesting because airline companies ticket prices are actually quite low for the amount of money it costs to maintain airports and planes. If airlines relied just ticket sales, they would be in severe debt because of the large cost of planes themselves, and upkeep on them. The reason they don't go in debt is because of government subsidies, which are given because the government doesn't want to make flight a public good.
ReplyDeleteThe word "profit" can be used very loosely. When the airlines said they made a larger profit than the previous year, they were only talking about the fact that more people bought tickets, possibly at higher prices. Also, two major airlines also bought other airlines this year enabling them to cut costs in different areas. The government however is the only reason we still have airlines. If the government didn't subsidize the airlines, it would be a very quick downfall for them and no one would be able to fly anywhere because it would cost so much.
ReplyDeleteI have to agree with some folks in that when I hear about the airplane industry; monopoly isn't the first thing that comes to my mind. Now, I know that airplane prices are pretty high and I can even say this from personal experience. Whenever my family plans a trip out of the country, my parents go on a spree to find the best prices from different travel agents and sites. From all this, I thought the demand for airline tickets was going to go down, that said I was very surprised to hear that the IATA projects a 50% increase in ticket sales. I thought after the recent events of control tower personnel sleeping on the job and the delays with some new aircraft that this was going to slow down the industry as a whole. Guess not, anyway good job on the post.
ReplyDeleteThough your article is well written, I disagree with how this unfair monopoly. The airlines are basically stealing the tax payer’s money and no one is doing anything about it. Because these air lines charge so much and the government is giving them surpluses, the airlines can just raise their prices and still make money. I myself and anyone else should have to pay over 400 dollars for a flight ticket just to see their family. Though these airlines think their smart by “stealing” money, they aren’t really helping themselves or anyone if they aren’t making a profit without the governments help.
ReplyDeleteAlthough the tax payer's money is going to airplanes and airliners, that's what the tax payers money is for. In our society, airplanes have basically become a public good. What would our society be like without airplanes? We need airplanes and airports for transportation and a boost to our economy. You made some good points, but I would have to disagree. Joe, well written article and you made some good points.
DeleteAirlines have it pretty good, there s really no other way to travel that is as fast as an airplane. Plus airplanes are for the most part comfortable and more enjoyable than a car or train ride. It is amazing how much money airlines made. The airlines could probably raise prices even more because it's not like people are going to stop flying. It is the most efficient way of travel and we won't give that up for a little extra money.
ReplyDeleteI'm surprised because it seems that airlines have been failing. This thought could because of the merger between Frontier and Midwest, but I would think that less people would want to fly because they're struggling to get the money to go on the vacations and they are focusing more on the necessities, then on the luxuries, or at least they should be.
ReplyDeleteHaving the airlines earn more profit is a great thing to see, as it helps boost our economy. It's also nice to see that they would be investing in a more enjoyable experience, as traveling on planes is a pain for many. Although they would be charging more, I'd much rather have a more pleasant flight, rather than just being packed in like a bunch of sardines.
ReplyDeleteI never really thought about the importance of airplanes. Of course they are important because they are what carries many families and people for vacations, jobs, etc. You are completely right when you say that there will always be a high demand for traveling by airplane because what other way do people have? For instance, people would much rather fly to Florida in close to a combined total of 3 hours rather than driving their which may take close but most likely more than a full day.
ReplyDeleteGreat post!
It seems to me that the reason that people would be willing to pay more money for a flight is because they refuse to use the alternatives even when it will save them money. It is because people are mentally lazy, they would rather pay $600 for a flight from Chicago to New York when you could drive there and pay only $225. But people want to relax and entertain themselves "AKA treat themselves" rather than use whats between their ears and be smart.
ReplyDeleteNever realized how much an airline has an effect on the economy and how much revenue they bring in each year. The amount of money made keeps increasing each year which means that people are willing to pay more for a plane ticket than they used to. They are willing to pay more because it will never go out of demand because it is really the only way to travel besides a car or train, but plane is the fastest and most convenient way. Driving costs more gas so the plane is what most people use for traveling long distances. With that said, airline companies could raise their prices fairly high and most consumers would still be willing to pay the price!
ReplyDeleteI'm not sure that I agree with your comment about the airlines significantly growing in profit because without the government subsidizing the airlines that business wouldn't be able to stay in the market. The prices for airline tickets are insanely high and I think that pretty soon the demand for tickets will decrease if the prices keep rising the way they have. I think your argument is presented well but I disagree with the how the airlines are profiting when they wouldn't even be able to stay afloat in the economy if it weren't for the subsidies the government provides.
ReplyDeleteI never really knew how much an airliner makes a year. Now realizing they make more than a billion dollars in revenue, you would think that they would invest in other areas like food. Although the price of an airline seat is going up, the demand for airplane seats are going up. Because the demand for seats are going up, airplane companies have the advantage of raising prices so that they can have a bigger revenue and make more money. I never really knew that airlines made 2 billion dollars in revenue, which will make the demand for seats higher, but the price of that seat goes up because of airliner’s raising the prices of seats.
ReplyDeleteWhat about government subsidies? Without these subsidies, the airline industry would crash and burn (pun intended). While your logic was sound, your argument just doesn't hold water.
ReplyDeleteIt's also incorrect to say that airplanes are an inelastic good; when the economy takes a downturn, people are going to cut back-- especially on luxuries like vacations. The only way these airlines stay in business, besides government subsidies, is through competitive pricing. You state that the airline industry is a monopoly, but this is false-- airlines function more as an oligopoly, which means there is little competition, but there's still enough to create competitive pricing.
Honestly I wonder how airlines make all that money, I feel like it would cost a fortune to fly someone somewhere and I know that it is a few hundred dollars and person but I feel that after adding everything up they just wouldn't make any money in the end. I'm glad I saw this article though because I have been weirdly thinking about this a lot recently. It is an industry that will always be needed as flying is one of the big technological things such as we will always need people out their to fix our I phones.
ReplyDeleteI always thought that the airline economy would do badly because the subsidy that the government pays would not let the airline company do as well. The government gives free money to the airlines but they still make a profit. But it is still go to see that the airlines are making a profit and that could mean in the future that airline tickets will decrease in price.
ReplyDeleteIt almost seems as if it would be a lot less costly to drive to wherever you need to go within our country. The prices for tickets can sometimes be in the thousands. I get it, the planes cost a lot for maintenance and fuel. But a price of thousands of dollars for a round trip on the holidays? I would rather spend $300 on gas. The demand for airlines will decrease because it is an elastic good. If they keep raising the prices, a lot of people will convert to some other transportation method.
ReplyDeleteJoe after reading your blog post I now see how airlines make so much of a profit in today's economy. Like Joe said airlines are particularly, "...one major monopoly that still is thriving in today’s down turn economy." One main reason I see so much profit is because of the depleting supply of gas and oil that gives airlines the opportunity to hike up ticket prices. Yet, people treat driving and flying an airplane like an inelastic good that never fails to satisfy consumers; am I right? Well, unfortunately gas and oil is a non-renewable resource that will need to find alternatives. Soon enough the price of airline tickets will then be so high that there will be a demand shift and consumer expectation will change and result in the substitution effect (consumers will find an less expensive alternative). This substitution effect will then end today’s great monopoly: airlines. So Joe, what does the future look like? When will this substitution effect take place? What will be some alternatives to the non-renewable resources, that give us airplanes and cars? Many of these great monopolies may gain profit in today’s ‘down turn economy’, but a lot of these monopolies today also have an expiration date.
ReplyDeleteAlso, I would have to agree with Greg G. comment on how airlines are not a monopoly because like Greg said there are several airlines that compete to be the best airline in the market. In my previous comment when I said monopoly, I meant to say *big businesses like the oil companies and the airlines like Joe said in his post.
DeleteI wouldn't agree with you that these airlines are monopolies. However, I would posit that they have formed a oligopoly. This is largely because while it is true that there are many different "companies", the fact that they have formed these "Star Alliances" and other groups solidifies the fact that they have formed some sort of a coalition, allowing these numerous groups to increase their dominance over the market.
ReplyDeleteThey say that airlines are a monopoly but in fact they are separate companies. Even though they are separate the are acting like a single company by aligning their prices and services with each other. Sort of funny how airline fairs are relatively the same from one company to another and the fee they charge for things like baggage are also the same despite the fact that they are separate companies. During the down economy they still do good but they also changed their business model from ticket cost as revenue to more of their revenue from "fees" they charge which you can do nothing about. You can shop ticket price but you can't shop fees.
ReplyDeleteI would actually have to agree with John Soo, I don't think airline companies have formed a monopoly, but an oligopoly instead. The have agreed on similar prices and, therefore, they are obtaining similar profits. Another thing that is interesting to me is how there are some destinations that are covered by only one airline company. This idea actually supports the idea of monopoly, which is interesting. I would challenge Josh Moore in his claim that all "fees" are the same, how would you explain Southwest where "bags fly free"? There are definitely differences between each company, this is why I agree with John Soo that airline companies have formed an oligopoly.
ReplyDeleteIt's crazy to think that airlines make so much money even though it can cost so much to a consumer when they fly on those airlines. It makes sense though because airplanes are the main way people transport to destinations that are long distances away. Some people may drive or take trains but airplanes are more convenient since they get people to places much quicker than other forms of transportation. I wonder if taking airplanes will still be as popular if the price is expected to go up in the future. It's expensive enough as it is to take an airplane instead of driving or a different form of transportation, so I wonder if the demand will stay the same if the price increases.
ReplyDelete