Economic Theory - Airline Industry Essay Example | Topics and Well Written Essays - 2500 words

Economic Theory - Airline Industry - Essay Example This paper examines the economic profile of the airline industry paying attention to issues such as shifts and price elasticity of supply and demand, positive and negative externalities, wage inequalities and monetary and fiscal policies. The first part of the report provides an overview of the airline industry while the second part of the report focuses on the above listed variables. Air transport today is one of the largest industries in the world. For example, the scheduled airline industry generated revenues of nearly $375 billion in 2004 (British Airways Fact book 2006). According to BA Fact Book (2006), over half a billion passengers were carried on international scheduled services with this figure having grown at an annual average rate of more than 6% since 1970, when the then corresponding number of passengers was 75 million (British Airways Fact book 2006). Many commentators for example have long argued that, aviation has an overall economic impact far in excess of its turnover (Riggas 2001). Here, Boyd (2000) argues that the network of air transport services facilitates growth in output and employment, and at the same time international trade and investment, tourism, and living standards (Boyd 2000). BA Fact Book (2006) refers to Air travel as â€Å"a vital artery that reinforces the process of globalisation, allowing it to transform the way in which many other industries carry out their business† (BA Fact Book 2006:5). In response to the rapid growth in business travels in recent years, the airline industry has witnessed rapid growth in the last four decades. Rigaes (2002) postulates that, one argument in favour of the present state of the airline industry is positive externality. Thus such a higher growth in the sector is due to global mobility that outweighs the microeconomic losses and justifies continuing government intervention. The industry is also