Writing Assignment 2 - Essay Example

The government is in the process of making it mandatory on airline carriers to fully and completely disclose airfare. This is the result of increased distress of airlines passengers who feel confused and cheated when the prices of air tickets turn out to be far more than they ‘bargained’ for, after including taxes, baggage and food fees, reservation change penalties, seating charges, etc. The airline industry, post-deregulation in the late 70s, is free to set prices, which are now determined by the market forces.

Airline tickets have never been cheaper, thanks to increased price transparency through the internet. Air travel is easily available to the general public as its demand for affordable prices has been met by carriers, who have unique cost structures in place for scale economies. For price setting, airlines are able to predict (through trend analysis) which time of year most people would prefer to fly. With demand high, the price is also set high. When a particular airline observes that ticket sales are slower, it will cut down on the ticket price.

These changing prices obviously frustrate consumers and have prompted the government to establish some sort of consumer protection. According to the author, the government is requiring airlines to include all ‘potential’ fees, along with the actual ticket price, on every advert. The customer has to be apprised accurately of the baggage fees. Air carriers must now also include all government taxes in the advertised price. The government has also imposed huge penalties on carriers for extended tarmac delays.

This is very likely a factor to shift the supply curve to the left as last year saw many cancellations of flights; it was more cost effective to cancel the flight than wait out a delay. Consumer protection elsewhere, such as the E.U., is much more stringent. There is, undoubtedly, room for increased consumer protection in the U.S. Air ticket demand is extremely price elastic for short haul flights as other modes of travel are easily available, making fierce price competition. For longer haul flights, though, demand is relatively inelastic and other factors, such as convenience of flight connections, comfort, leg space, flight entertainment, etc.

impact demand. Airliners must now incorporate these changed policies into their pricing strategies, going forward. References SUSAN, STELLIN (2011). U.S. Orders Airlines to State Fees More Clearly”. The New York Times. Retrieved 20 April 2011 from http://www.nytimes.com/2011/04/20/business/20air.html?_r=1&src=busln