Large concessions from employees and avoided bankruptcy

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Reference no: EM131169623

Large airlines have enormous fixed costs. Their business after the attack of September 11, 2001, was dismal. US Air and United declared bankruptcy. American obtained large concessions from employees and avoided bankruptcy (until 2011). Cutting flights reduced capacity, but debt payments on idled aircraft continued, as did lease fees on idle terminal facilities and landing slots. What was thought to be a temporary downturn began to look like a permanent shift in flyer preferences. However, the slack demand resulted in no noticeable reduction in airfares. In fact, a multitude of new add-on fees were imposed (such as baggage checking fees, charges for food served onboard, an extra foot- room charge, etc) which are de-facto fare increases. Diagram the initial impact of September 11 on the passenger miles flown. On the same grid, diagram the subsequent attempts by the airlines (in the nature of supply-side change) to adjust. Using economic terminology, write a statement of your analysis as (b). Your written comments and also your diagram should show how it is possible that airfares did not plummet, although passenger load declined drastically.

Reference no: EM131169623

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