Air Traffic Growth Loses Altitude
Subject Demand
Topic Supply and Demand
Key Words Growth, consumer, demand, slowdown, budgets, economy, discount
News Story

Airline traffic (defined as the number of passengers multiplied by the number of miles flown) grew 2 percent in October 2000 compared to a year earlier. This was the slowest rate of growth in two years, not counting the period when passengers were concerned about possible Y2K problems. In fact, Delta, United, American, America West and Alaska reported drops in traffic in October. Continental's traffic was flat. US Airways, Southwest, TWA, and Northwest saw gains.

United and America West blamed consumer doubts that the operational problems over the summer had been solved. Continental attributed their static demand to fears over Middle East violence and fewer steeply discounted tickets. Other industry observers noted a recent slowdown in business travel as companies cut travel budgets in the wake of the cooling economy, authorizing fewer trips and using more discount airlines.

The situation was made more acute by the fact that carriers increased the number of seats available by 2.7 percent in October.

(Updated January 1, 2001)

1. Draw a price-quantity diagram of the market for air travel. Include a demand curve. For each of the following, state which determinant of demand changed, whether there was a change in demand or quantity demanded, and illustrate the change on your diagram:
a) Travelers were skeptical whether operational problems had been resolved.
b) Travelers were worried about Middle East violence.
c) There were fewer discounted tickets.
d) Travel budgets were cut as the economy cooled.
e) Discount airlines were used.
2. The news story explains why demand may have been held back. Nevertheless, overall, demand increased. How would you account for this, based on the determinants of demand and your general knowledge?
3. Does the addition of more seats affect the demand curve? Why or why not?
Source Chris Woodyard, "Cooling economy hits airlines' traffic growth," USA Today, November 9, 2000.

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