What is supply and demand? Bradley R. Schiller's The Economy Today says that supply is "the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period." Schiller also gives a very good definition for demand, saying it is "the ability and willingness to buy specific quantities of a good at alternative prices in a given time period." They are both based on an assumption called ceteris paribus, that nothing will change. But what exactly determines supply and demand for a given market? Supply is determined by such things as the technology and number of sellers in the market. Demand is then determined by tastes or desire for the goods, the income of the consumer, and number of buyers. .
The airline industry is a market like any other, with its prices being controlled by supply and demand. Since September 11, 2001, the airline industry has been trying to recover from billions of dollars in loss. Months after the tragedy of the two towers many major airlines, such as U.S. Airways, filed for bankruptcy. This one incident had a major affect on the supply and demand of their market. How are things looking now, and where will they be in the next two to five years?.
"Airlines are not only particularly sensitive to external shocks (9-11) but also to economic growth. During cycle troughs, passenger traffic collapses, load factors display modest performances leading to the mothballing of numerous aircraft and to major declines in airlines" profitability. Moreover, high aircraft order cancellation fees limit the possibilities of canceling the delivery of aircraft ordered in previous years." (Pebereau, Michel) Postponed deliveries set the airlines with an obligation to pay for their aircraft when demand is at its lowest. It would make sense to financial institutes to use the aircraft as collateral, but their value declines. And because of this it is a lot easier to focus on supply to show predictions for the future.
