Air Transportation - Free Report Example

Introduction

Supply and demand is a theoretical outline of factors affecting the relationship between product availability and demand (Rothbard, 2009). On a broader scope of view, high supply, and low demand lead to a decrease in price and vice versa. According to Rothbard (2009), supply and demand is a fundamental economic law intersecting about all the economic principles. Supply and demand have a pull against each other until the market equilibrium price is reached. Various factors will affect the supply and demand, causing either their decrease or increase in a particular pattern. Supply and demand for passenger and cargo transport vary over time based on several factors, some of which are demonstrated by Airbus and Boeing aviation companies. They make their air travel forecasts for the next 20 years. This paper highlights factors affecting supply and demand for air transportation. It demonstrates how these two aviation companies (Airbus and Boeing) employ the supply and demand theory in making their commercial forecasts.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

The Airbus Global Market Forecast

The Airbus Global Market Forecast (GMF) bases the industry's success upon factors such as economic growth, trends of tourism, prices of oil, demographics, development of new air routes, and increased aircraft capacity developments. It focuses on increasing passenger capacity and utilization of newly developed aviation mega-cities due to the projected demands (Airbus, 2017). On the other hand, Boeing Services Market Outlook (SMO) gives a commercial forecast with a view of a very competitive demand in air transport in the next 20 years. This is due to the expected strong growth of the economy, upscale middle classes, escalating spending of consumers on services, and the dynamic airline business. The combination of passenger and freighter air transportation will increasingly attract demand for air services as this sector is predicted to grow 2.5 times in 20 years (Boeing, 2017). There is an expected increase in the need for deliveries to meet the market demands. Both GMF and SMO are plans to increase services based on the projected increase in demand and supply of global air transportation.

Even though there is no superior forecast used in the aviation industry, many use the executive judgment of individuals or teams with proper knowledge in aviation markets. Academic projection, which inclines its derivations from statistical methods of formulations, is also applied by some aviation industries in their forecasts. In many cases, traditional regression models are used to forecast the demand of passengers where the number of flight movements becomes an explanatory variable when establishing a forecast of demand in a particular airport (González-Savignat, 2004).

Demand

Several factors will influence demand for air transportation according to the forecast by Airbus and Boeing. One of these factors is economic activity/income levels and product prices. Some of the factors affecting ticket prices include world's income level, the per capita income, the exchange rate, and the economic climate. When the income level across the globe goes up, the demand for air travel and transportation by business persons, tourists, leisure travelers, and marketers will also go up. When there is a decrease in income, many people give up air transportation, considering it a luxury (Doganis, 2010). Demographic factors are another class of elements that informs the demands of global air transportation. The distribution of a population will determine the vastness of the distances to be covered and the frequency of flights. Big cities with many residents having good economic progress will experience high demands for air travel, and cargo freights for business activities (Doganis, 2010). In their forecasts, these two companies have majorly considered the economic and demographic factors to be having proper supportive effects on the demand curve for air transportation.

Supply

The supply-side factor of air transportation will be influenced by factors like ease of travel, frequency of services attended to by the potential travelers, seat availability in these aircraft, the convenience of departure and arrival times of these aircraft, and the in-transit stops stations. These factors will influence the demand distribution between different companies and lead to a specific airline (Chin, 2002).

According to Baye & Prince (2006), the microeconomics theory of supply and demand deals with the choices by different business firms in deciding on what goods and services to offer, the production and selling price. It deduces that the market price equilibrium is attained by consistency in consumption and production decisions. Based on this theory, it is the cooperation and coordination of a particular business that will affect its prices, demand, and supply (Baye & Prince, 2006). The GMF and the CMO's forecasts demonstrate how Airbus and Boeing companies will coordinate their business operations and how their coordination will impact pricing, demand, and supply of global air transportation.

Conclusion

In conclusion, the world's increase in income level will lead to a rise in demand for air transportation and vice versa. Dense Demographics distributions will mean increased business in cities leading to increased networking and high demands for air transport services. An increase in travel services, seat availability in the aircraft, comfort, and convenience by the aviation sector will automatically lead to a rise in demand and supply of air transportation. Given that these are the fundamental factors considered by both Boeing and Airbus companies in formulating the GMF and CMO, it demonstrates how greatly they have employed the supply and demand theory in developing their forecasts.

References

Airbus. (2017). Global Market Forcast. Blagnac Cedex: Airbus. Retrieved Sep 2017, from http://www.aircraft.airbus.com/market/global-market-forecast-2017-2036/

Baye, M. R., & Prince, J. T. (2006). Managerial economics and business. Mc Graw Hill.

Boeing. (2017). Current Market Outlook. Seattle: Boeing. Retrieved Sep 2017, from http://www.boeing.com/resources/boeingdotcom/commercial/market/current-market-outlook-2017/assets/downloads/2017-cmo-compressed_091917.pdf

Chin, A. T. (2002). Impact of frequent flyer programs on the demand for air travel. Journal of Air Transportation, 7(2), 53-86.

Doganis, R. (2010). Flying Off Course. 4th ed. Taylor&Francis e-Library. London and New York

González-Savignat, M. (2004). Competition in air transport. Journal of Transport Economics and Policy (JTEP), 38(1), 77-107.

Rothbard, M. N. (2009). Man, economy, and state. Ludwig von Mises Institute.