November 4, 2009 § Leave a comment
a) Does the written article suggest that European air travel is price elastic or price inelastic in demand?
The written article given suggest that British Airlines is very price inelastic. Even if they are focussing on luxuries and cutting down the economy-classed seats, ” its operating margin beats even America’s legendary Southwest Airlines, making it the world’s most profitable airline” (The Economist, 1999, Nov). By increasing prices quantity demanded will change very little and revenue will not decrease as much. Ryanair’s strategy suggests that a lower prices air travel highly elastic. By lowering the prices for plane tickets, the quantity demanded will increase and their revenues will increase significantly .
b) How has Ryanair become the world’s most profitable airline?
Lowering the total costs: “Ryanair owns only one kind of aircraft, the Boeing 737, which minimizes the service costs. A basic service allows Ryanair to have only two flight attendants in its 130-seater aircraft, whereas big carriers have five. Ryanair does sell cheap sandwiches, […] but no peanuts” . Taking advantage of elastic demand on lower prices to increase profit.
c) How can Ryanair offer seats on some flights for under 10 pounds?
Ryanair can offer more seats on some flights for under 1o pounds because they have a different price charge for every seat that they offer. By doing this, there will be more variation in the price from a very cheap priceーfor under 10 poundsーand as a result, the lower price can increase the demand of consumers.