Jacksonville University - AVM 306 1) Explain the law of demand as it relates to air travel

Jacksonville University - AVM 306

1) Explain the law of demand as it relates to air travel. What are the nonprice determinants of air travel demand? What happens to the demand curve when each of these determinants changes? Distinguish between a change in demand brought about by price and one caused by the nonprice determinants.

2. What does the coefficient of elasticity of demand measure? What is meant by elastic demand? By inelastic demand? What effect will the following changes have on total revenue?

1. Fares are reduced and demand is elastic.
2. Fares are raised and demand is inelastic.
3. Fares are reduced and demand is inelasti
4. Fares are raised and demand is elastic.

3. What are the major determinants of elasticity of demand? Use these determinants to judge whether the demand for the following services is elastic or inelastic:

a Short-haul, primarily business-market flights

b. Long-haul, primarily vacation flights

c. Short-haul flights with extreme competition from surface modes of transportation

d. Mid-week promotional fare directed at the pleasure market

4. What is the primary function of the Airline Tariff Publishing Company (ATPCO)? Why is the application of textbook strategies to airline pricing so difficult? How do introductory fares differ from excursion fares? What are target segment, mileage-based, zone, and value-added pricing?
5. Define and briefly describe five direct operating expenses. What is meant by maintenance burden? Give an example of depreciation and an example of amortization. What are indirect operating costs? Give several examples of nonoperating costs and revenues. What is the relationship between variable costs and available seat-miles (ASMs)? Give several examples of fixed costs.

6. Describe in your own words the profit-maximization point (use ASMs, RPMs, total revenue, and total cost in your answer). What is meant by marginal cost and marginal revenue? How do we determine passenger load factors?