Making sense of airline troubles

Interfering with firm entry or exit, price fluctuations, or products and processes: These are the pathways to stagnation



Ajay Shah
A few supply shocks have come together in airlines. What happens in a market when supply is suddenly restricted? The price moves until the gap between supply and demand is cleared. We conjecture that with economy class airline tickets, there is ample demand flexibility, and relatively modest changes in the price will restore equilibrium. In the meantime, surviving airlines will get a surge in profitability. They will lease additional planes, thus replacing the gap in supply. Price fluctuations, and firm death, are the beating heart of the market economy.

Difficulties in Jet Airways and the grounding of some planes by Boeing: These events have coincidentally come together as a supply shock in airlines. Will the price of plane tickets go
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of or the Business Standard newspaper

First Published: Mar 25 2019 | 12:33 PM IST

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