Last Updated 11 Feb 2020

Principles of Transportation Economics

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All through the phase of airline regulation, the government set airline faires and regulated an air carrier's entry into and exit from particular markets. Assuming that the incumbent airlines made economic profits while they were regulated, what impact, if any, did the government's regulation of routes have upon air carrier's ability to make profits?

Transportation economics is considered as the analysis of the share of carrying wherewithals so as to come across the necessities of the general public (Encyclopædia Britannica Online, 2007). In a broader sense, delivery pursuits create a segment of a state’s entire trade and industry items for consumption and take part in the responsibility of constructing or intensification of a countrywide or local economy and as a stimulus in the progress of assets.

With the hauling precautions direction, there is a constraint that the travelers must hand over a boarding documentation ahead of going through zones outside safekeeping checkpoints. Numerous airlines recently proffer passengers the means of departing through the net and producing lodging permits or licenses prior to leaving.

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Due to government intervention, the imposition of government faires will consequentially affect the fees of airline carriers’ consumers. They will be compelled of taxes, charges, and additional costs on matters such as fuel, airport rents, aircraft financing, which will be reflective and increase the prices that they will be paying for (Hardisty, 2003). And therefore, will have a lower demand for the airline services.

This may indeed affect the income of the incumbent airlines since their transactions are regulated. Consumers of their service will eventually hold back their use of the airline service since there are a lot of barriers to entry as stated by Palmby (1995). The former ease of access was lessened. For these reason, people will not be able to bring some things that they usually carry or transport.

Additionally as discussed by the Federal Aviation Administration (FAA) and Optimal Solutions and Technologies (OST) in 1999, on account of the government intervention, the administration of airline carriers will have fewer opportunities to improve their systems and just depend on the established government regulation of airlines. Significant losses can be incurred by the managing airlines and they tend to stay extremely susceptible to drop in airline interchange. Their pecuniary chances have gone through noteworthy stumbling blocks.

However, although the government regulation of routes has a negative impact upon the air carrier’s ability to make profits, it has also a positive impact in return.

Some terrorist attacks through air carriers may be prevented, hence, the management of air carriers does not have to spend money on possible damages that terrorism may have caused (Potter, 2006). Aside from that, together with the cooperation that the management of air carriers is receiving from the government, the running institution may have a directory or catalog of legal persons who may possibly avail of their services. Therefore, the management of air carriers does not have to spend their resources on tracking some unauthorized and illegal passengers. Furthermore, because of authority supervision, there will be more convenient gate assignments (and less reassignments); as a result, more people may eventually avail of the airline services despite higher costs of transport. These sets of incidences cyclically may contribute to beneficial return of earnings to the airline managements.

Even though there is a prevailing acquisition and implementation of government regulation in airline carriers, with proper and appropriate administration of their managements, they will be more likely to have a good return in the running government regulation or will be able to have better accumulation of profits.

References:

FAA/OST Task Force Study (1999). Airport Business Practices and their Impact on Airline

Competition. Retrieved June 16, 2007, from http://ostpxweb.dot.gov/aviation/domav/airports.pdf.

Hardisty, Kent (2003). The Viability of the Airline Industry in Canada. Retrieved June 16, 2007,

from file:///C:/DOCUME~1/Owner/LOCALS~1/Temp/Capt-1.htm.

Palmby, William G. (1995). Enhancement of the Civil Reserve Air Fleet: An Alternative for

Bridging the Airlift Gap. Retrieved June 16, 2007, from http://www.fas.org/man/eprint/palmby.htm.

Potter, Jeff (2006). Frontier Airlines. Retrieved June 16, 2007, from

http://www.frontierairlines.com/frontier/pdf/Annual_Report_2006.pdf.

transportation economics. (2007). In Encyclopædia Britannica. Retrieved June 16, 2007, from

Encyclopædia Britannica Online: http://www.britannica.com/eb/article-9110749.

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