Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In the January 7, 2010 Reuters article "U.S. airlines align to start new year with higher fares," Karen Jacobs and Deepa Seetharaman report U.S. consumers can expect to pay more for air travel in 2010.

Can you illustrate these changes in the market for air travel using supply and demand analysis?

Do these changes include (a) an increase in the supply of air travel, (b) a decrease in the supply of air travel, (c) an increase in the demand for air travel, or (d) a decrease in the demand for air travel?

Read the article below and then illustrate these changes in the market for air travel with a graph that shows the initial positions of the supply and demand for air travel and the new positions of the supply and demand curves. (Hint: Do both curves shift?) There is a link at the bottom that provides the answer.

ATLANTA/NEW YORK – If you thought U.S. airlines would reduce fares following a laundry list of new security rules after an attempt to blow up a U.S.-bound plane on Christmas day, you would be wrong.

Rising oil prices and signs that business travelers are gradually booking more flights has emboldened some U.S. airlines to ring in the New Year with higher ticket prices.

UAL Corp's United Airlines instituted a $6 to $10 domestic roundtrip fare increase on December 30 that was matched by other major carriers, according to FareCompare.com.

"Given the pressure on (airlines') bottom lines and if oil continues to rise, the pressure is going to be there to find additional sources of revenue," said Brian Clark, general manager of fly.com, an airfare search engine that is a unit of TravelZoo.

The post-holiday period is among the most lackluster for travel companies as the reopening of schools and cold weather discourages travel. The success of fare increases hinges on whether airlines can align to prop up prices.

Clark said current fares are less than 5 percent higher than a year earlier, while Rick Seaney, chief executive of FareCompare.com, noted that some pricing is back up to pre-2008 levels.

"I don't expect prices to go up dramatically, but I do expect them to increase incrementally," Seaney said, adding that he did not expect the latest security concerns to cause as much disruption for airlines as the 2009 H1N1 swine flu outbreak, which soured demand for travel to Mexico.

Seaney said U.S. airfares reached bottom at the end of May and early June as carriers sought to occupy seats in the weak economy, while international ticket prices touched the lowest point of their declines in late July and early August.

Airlines have been encouraged by signs that business demand was recovering from the deepest recession since the Great Depression. Executives at carriers such as AMR Corp's American Airlines and US Airways Group last month cited evidence that business demand was improving.

This week, Continental Airlines, which depends heavily on business traffic, estimated that its mainline unit revenue fell between 4.5 percent and 5.5 percent in December. In November, this measure fell 9.8 percent and in October, it dropped 15.2 percent.

"The trends are definitely up for business travel coming back," Seaney said. "But it's a slow trickle, it's not a quick jump."

Shares of major U.S. carriers rose on Thursday as oil prices pulled back. The Arca Airline index was up 2.3 percent in morning trading.

Delta Air Lines shares gained about 5 percent, while Continental, UAL and AMR were up more than 4 percent in late-morning trading.

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Gov't imposes 3-hour limit on how long airlines can keeping passengers waiting on tarmacs

In the December 21, 2009 article "Gov't imposes 3-hour limit on tarmac strandings," Associated Press writer Joan Lowy reports a new government regulation will limit the length of time passengers can be stranded on a an airport tarmac. Is this an unnecessary intrusion on the free market? Or is it an example of government fulfilling its Constitutional mandate to "promote the general welfare… to ourselves and our posterity” and to secure the rights to life, liberty, and the pursuit of happiness as specified in the Declaration of Independence.

WASHINGTON (AP) -- Stinky toilets, crying babies, airless cabins -- the Obama administration said Monday passengers don't have to take it any more. It ordered airlines to let people get off planes delayed on the ground after three hours.

Transportation Secretary Ray LaHood said the three-hour limit and other new regulations are meant to send an unequivocal message to airlines not to hold passengers hostage on stuck planes. Coming on the eve of the busy holiday travel season, the announcement was hailed by consumer advocates as "a Christmas miracle."

The airline industry said it will comply with the regulations -- which go into effect in 120 days -- but predicted the result will be more canceled flights, more inconvenience for passengers.

"The requirement of having planes return to the gates within a three-hour window or face significant fines is inconsistent with our goal of completing as many flights as possible. Lengthy tarmac delays benefit no one," said Air Transport Association President and CEO James May.

LaHood, however, dismissed that concern.

"I don't know what can be more disruptive to people than to be stuck sitting on a plane five, six, seven hours with no explanation," LaHood said at a briefing.

This year through Oct. 31, there were 864 flights with taxi out times of three hours or more, according to the Bureau of Transportation Statistics. Transportation officials, using 2007 and 2008 data, said there are an average of 1,500 domestic flights a year carrying about 114,000 passengers that are delayed more than three hours.

Last month, the department fined Continental Airlines, ExpressJet Airlines and Mesaba Airlines $175,000 for their roles in a nearly six-hour tarmac delay in Rochester, Minn. In August, Continental Express Flight 2816 en route to Minneapolis was diverted to Rochester due to thunderstorms. Forty-seven passengers were kept overnight in a cramped plane because Mesaba employees refused to open a gate so that they could enter the closed airport terminal.

It was the first time the department had fined an airline for actions involving a ground delay. Transportation officials made clear the case was a warning to the industry.

Under the new regulations, the only exceptions to the requirement that planes must return to the gate after three hours are for safety or security or if air traffic control advises the pilot in command that returning to the terminal would disrupt airport operations.

Homeland Security Secretary Janet Napolitano said she thought the 3-hour rule would not cause any problems for security. "I can't imagine it would. I call it the rule of common sense," she said.

Airlines could be fined $27,500 per passenger for each violation of the three-hour limit.

The regulations apply to domestic flights. U.S. carriers operating international flights departing from or arriving in the United States must specify, in advance, their own time limits for deplaning passengers. Foreign carriers do not fly between two U.S. cities and are not covered by the rules.

Tarmac strandings have mostly involved domestic flights, but the department is studying extending the three-hour limit to international flights, LaHood said.

"This is the beginning," LaHood said. "We think we owe it to passengers to really look out for them."

Airlines will be required to provide food and water for passengers within two hours of a plane being delayed on a tarmac, and to maintain operable lavatories. They must also provide passengers with medical attention when necessary.

Airlines will also be prohibited from scheduling chronically delayed flights. They must designate an employee to monitor the effects of flight delays and cancellations and respond to consumer complaints. And they would have to post flight delay information on their Web sites. Carriers who fail to comply could face government enforcement action for using unfair or deceptive trade practices.

Provisions sponsored by Sens. Barbara Boxer, D-Calif., and Olympia Snowe, R-Maine, in pending legislation would also impose a three-hour limit, but the new regulations go even farther, giving passenger rights advocates many of the reforms they've sought for years.

"No more will they be able to strand passengers for over three hours in hot, sweaty, metal tubes," said Kate Hanni, founder of Flyersrights.org. Hanni, who called the rules a Christmas miracle, was stuck on an American Airlines jet in Austin, Texas, for over nine hours in December 2006 when storms forced the closure of Dallas-Fort Worth International Airport, stranding more than 100 planes.

Past efforts to address the problem have fizzled in the face of industry opposition and promises to reform.

Congress and the Clinton administration tried to act after a January 1999 blizzard kept Northwest Airlines planes on the ground in Detroit, trapping passengers for seven hours. Some new regulations were put in place but most proposals died, including one that airlines pay passengers who are kept waiting on a runway for more than two hours.

The Bush administration and Congress returned to the issue three years ago after several high-profile strandings, including a snow and ice storm that led JetBlue Airways to leave planes full of passengers sitting on the tarmac at New York's Kennedy International Airport for nearly 11 hours.

After those incidents, DOT Inspector General Calvin Scovel recommended that airlines be required to set a limit on the time passengers have to wait out travel delays grounded inside an airplane.

A year ago, the Bush administration proposed airlines be required to have contingency plans for stranded passengers, but the proposal didn't include a specific time limit on how long passengers can be kept waiting. It was denounced as toothless by consumer advocates.

AP Airlines Writer Harry R. Weber contributed to this report from Atlanta. Associated Press Writer Suzanne Gamboa in Washington contributed to this report.

Department of Transportation http://www.dot.gov

Air Transport Association http://www.airlines.org

Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In the September 12, 2009 Milwaukee Journal Sentinel article "Airline competition driving down prices at Mitchell," Tom Daykin reports that airfares from Milwaukee have decreased recently.

Is the reduction in the price of Milwaukee airfares caused by (a) an increase in the supply of flights from Milwaukee, (b) a decrease in the supply of flights from Milwaukee, (c) an increase in the demand for flights from Milwaukee, or (d) a decrease in the demand for flights from Milwaukee?

Read the article below and then illustrate this price change with a graph that shows the initial positions of the supply and demand for a seat on a flight from Milwaukee and the new positions of the supply and demand curves. (Hint: Only one of the curves shifts.) There is a link at the bottom that provides the answer.

With AirTran Airways and Southwest Airlines providing more competition, now is a good time to book a flight out of Milwaukee's Mitchell International Airport.

Fares for flights departing from Milwaukee this fall have dropped 20% compared with fall 2008, according to data compiled by Kayak.com.

Also, flights booked through Orbitz.com departing Milwaukee between the day after Labor Day and the Sunday before Thanksgiving are 21% cheaper than the same period last year.

But it gets even better, according to Simon Bramley, vice president of flights for Travelocity.com.

His numbers show that the average airfare for a Milwaukee departure is 16% less than the national average for January through October. But for the upcoming period from November through March, the average airfare for a Milwaukee departure will be 30% less than the national average.

"That's a pretty significant discount," Bramley said.

Not coincidentally, Southwest Airlines begins service in Milwaukee on Nov. 1. The discount carrier will offer 12 daily nonstop flights to Baltimore, Kansas City, Las Vegas, Phoenix, Orlando and Tampa, Fla.

"It's obviously true that when any new airline starts service in a city, prices drop," Bramley said.

While Southwest has built its business as a low-fare carrier, some of the big savings can be found on its rivals flying from Milwaukee, Bramley said. Some airlines offer flight and hotel packages that Southwest doesn't provide - providing another way to find a bargain, he said.

Even before Southwest announced its plans for Milwaukee, fares were dropping because AirTran, another discount carrier, was greatly expanding its service, said Bramley and Vaughn Cordle, an airline industry consultant.

"It was kind of a no-brainer" that Southwest and AirTran service expansions would drive down fares for Milwaukee travelers, said Cordle, who operates Airline Forecasts LLC.

Both AirTran and Southwest have been adding flights after Oak Creek-based Midwest Airlines cut service nationwide by around 40% last year.

As a result of those reductions, Midwest, long the dominant carrier in Milwaukee, saw its market share drop. Midwest, which in recent years had a market share of around 50%, had a 34% share in June, the latest month for which airport data was available.

AirTran in June had a 24% market share at Mitchell International.

Midwest was recently sold to Indianapolis-based Republic Airways Holdings Inc., which has restored service from Mitchell International to Los Angeles and Louisville, Ky., and plans to add more flights out of Milwaukee.

Meanwhile, travelers like Jim Fontanini are enjoying the savings.

Fontanini regularly travels from Milwaukee to St. Louis to see his girlfriend. He used to pay around $150 for a roundtrip flight on Midwest Connect, the Midwest Airlines commuter service. But Midwest dropped nonstop flights from Milwaukee to St. Louis last year, so Fontanini began to drive instead.

Fontanini lately has been finding cheap flights, including a $78 roundtrip ticket booked for October on American Airlines.

"I'm back to flying," he said.

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Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In the August 20, 2009 story "Fall airfare sales cutting deeper than usual," Associated Press writer Joshua Freed talks about airlines cutting airfares. Is this change in the price of air travel caused by (a) an increase in the supply of air travel, (b) a decrease in the supply of air travel, (c) an increase in the demand for air travel, or (d) a decrease in the demand for air travel? Read the article and then illustrate this price change with a graph that shows the initial positions of the supply and demand for air travel and the new positions of the supply and demand curves. (Hint: Only one of the curves has shifted.) There is a link at the bottom of this posting that provides the answer.

MINNEAPOLIS – Airlines are cutting fares deeper than usual this fall in an effort to fill seats.

American and Southwest both launched fare sales this week, and United is running several sales, too.

While it's common for airlines to use discounts to fill planes during the slower fall travel months, the discounts this year are deeper and more widely available than last fall, said FareCompare.com CEO Rick Seaney.

"The prices we're seeing now are just absolutely superb" compared with this time last year, he said. They're still a little above the fares airlines were offering over the winter and spring when demand was in a free-fall, he said.

Business travelers, the most profitable for airlines, have been staying home for months as companies cut travel back to only the most essential flying. Steep discounts kept leisure travelers in the air through the summer, though at prices that often don't cover the cost of the flight. Still, airlines are better off flying at a loss than parking the plane and incurring what would often be an even bigger loss.

Cheap seats are easier to get under some of the sales than others.

The sale by Southwest Airlines Co. applies to flights from Sept. 9 through Jan. 7, but sale fares aren't available on Fridays or Sundays. And it blacked-out flights around Thanksgiving — Nov. 24 through Dec. 1 — and near Christmas and New Year's Day — Dec. 18 through Jan. 4. Tickets must be purchased by Sept. 3. Some seats are as cheap as $59 each way plus taxes.

UAL Corp.'s United, meanwhile, is running several sales, with fares for travel between Chicago and Houston for $102 each way, and travel between Atlanta and Denver for $109 each way. Tickets have to be purchased by Tuesday for travel by Dec. 16.
Another sale covered Washington Dulles to several East Coast cities for travel through Nov. 18. Tickets must be purchased by Friday. Both sales are valid only for travel on Tuesday, Wednesday, or Saturday.

The sale by AMR Corp.'s American covered flights between New York and five other cities: Miami, Chicago, Dallas-Fort Worth, San Francisco, and Los Angeles.

The New York to California flights were $109 each way, a number that caught Seaney's eye. It's close to the $99 each-way fare for coast-to-coast travel that fliers watch for but seldom get, he said.

Also, some carriers are undercutting each others' direct flights with one-stop flights to the same cities.

"There's a lot of really low-ball deals out there if you're willing to put up with connecting," he said.

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Is this a photo of an aircraft or a beach?

Maho Beach is definitely one of the most impressive beaches in the world. It’s located on the island of St. Maarten in the Caribbean – St Maarten is part of the Netherlands Antilles. Maho Beach doesn’t stand out from other beaches because of the sea, sand, waves, or anything like that. The beauty of Maho Beach lies in its location immediately adjacent to the Princess Juliana International Airport of St Maarten. The runway of the Princess Juliana International Airport (International Air Transport Association (IATA) airport code is SXM) is rather short so pilots landing the aircraft must touch down at the very beginning of runway 10, otherwise they wouldn’t have enough distance to safely stop the plane. Since Maho Beach is located right across the road from beginning of airport’s runway, landing planes are so close to the people on the beach, you almost feel you could touch the wheels if you jumped up.

Source: Maho Beach in St. Marteen - Planes Landing Above Your Head.