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Essay on Ethics In Aviation
The airline industry is a service industry with a perishable product. The industry provides a transportation service to business and leisure carriers, with business travel accounting for approximately 55 percent of the traveling public. The product is perishable in that capacity not filled at the time of takeoff is lost. There is no opportunity to gain revenue at a later date for the excess capacity.
By statute, predatory pricing has applied only to producers of goods, and not services. This means on the most basic level that there is neither a legislative basis nor existing court precedent for pursuing actual predatory pricing action against predators in the airline industry, or any service industry.
On another level, service-based firms face other unique challenges in pricing that can have a devastating effect in certain highly competitive situations. Many feel that the cost structure for airlines is heavily weighted towards fixed costs versus variable costs. Once a flight is scheduled the costs of the aircraft and the crew effectively become fixed costs. Given this, it is not surprising that the average variable cost has been estimated to be as low as $10 per seat.( Marshall, Alex (2003))
It is argued that a more appropriate measure of cost for the airline industry might be either fully allocated costs, or incremental costs. He argues that these measures more accurately reflect the costs of the industry given the unique situation faced by airlines.
Specifically, the airlines must be concerned with their break-even load factors, that is, the number of passengers paying a sufficient fare to enable the airline to break even on the flight. If an airline is selling seats above its average variable cost, but is not selling a sufficient number of seats, then the airline continues to lose. In the rational economic view, airlines....
