An economic recession is a period in economics marked with a significant decline in economic activity that usually lasts for a period shorter than a depression. During an economic downturn, the level of business activity will be low because overall demand and consumption of goods and services will be low. The 2008 recessionary period led to a reduction in the number of passengers in the airline industry as per the available statistics. The paper analyses the effects of the 2008 economic recession on the overall demand and supply for the airline industry outlining the airline’s response to the economic phenomenon.
Figure 1: Graph summarizes the level of demand and supply in the US airline industries amid the 2008 recessionary period.
A review the available reveals the recessionary period was marked by a decline in the Revenue Passenger Mile. It was because the passengers were unwilling to travel by air due to a decrease in their consumption power. It resulted in a decline in the revenue turnover by the airline industries. To keep up with its operations amid the financial crisis, these carriers adopted several strategies that would enable them to reduce on the Available Seat Miles (ASM) to the passengers as the numbers were dwindling (Bureau of Transportation Statistics). On one of the strategies to cut down on the number of employees that they employ.
Such a reduction meant that airlines registered a decline in the supply of airline services. The decrease in the ASM as shown in the above graph suggested that these companies could divert some funds and expenses they could use to pay off the laid off employees in other activities, for instance, subsiding the prices of their tickets or reduction of the overall prices so that more passengers are attracted to travel. Furthermore, flights to some destinations that were uneconomical to operate were cancelled to reduce further the costs which also led to a reduction in supply.
References
Bureau of Tranportation statistics. U.S. Air Carrier Traffic Statistics Through October 2015. 2016. <http://www.bts.gov/xml/air_traffic/src/index.xml#CustomizeTable>.
