Aviation Market Structures and Economics Flashcards

A set of vocabulary flashcards covering market structures, regulation, externalities, and labour markets within the airline industry based on lecture notes.

Oligopoly

A market structure characterized by a few dominant firms, such as the Ryanair group and Lufthansa group, where the top 5 firms often have a concentration ratio over 60%.

Barriers to Entry (Airlines)

High capital intensive requirements including aircraft procurement, scarcity of landing spots (e.g., Heathrow slots costing up to $75\text{ million}$), and high fixed costs like fuel and staff.

Collusion Example (2004-6)

When BA, Virgin Atlantic, and KLM fixed higher prices for long-haul flights, leading to a loss of allocative efficiency and a fine of £121.5m for BA.

Whistleblowing (VA)

Virgin Atlantic avoided a fine for price-fixing collusion because they alerted the authorities (OFT and DOJ) about the activity.

Third Degree Price Discrimination

The practice of splitting consumers into groups based on elasticities, such as business travellers (inelastic) and leisure travellers (elastic).

Breakage

The profit airlines keep when loyalty points expire or accounts become inactive, meaning the airline never incurs the cost of honouring the miles.

Dynamic Pricing

The real-time adjustment of ticket prices based on demand, seat availability, competition fees, and booking time to maximize revenue.

1978 Deregulation Act

A USA law that removed federal control over airline fares and market entry, shifting the industry to a market-driven model and lowering barriers to entry.

Boeing 737 Family Cost

A specific example of a high barrier to entry where a single aircraft can cost over $99\text{ million}$.

CAA (Civil Aviation Authority)

A regulator that can fine firms up to 10% of worldwide annual turnover for breaking competition law or £100,000 daily for failing to provide requested info.

Inelastic Demand (Air Travel)

Typically associated with business travellers who have less flexibility and are less sensitive to price changes for urgent flights.

Negative Externalities

External costs of air travel including noise pollution, degradation of local air quality, and contribution to 8% of global $CO_2$ emissions.

Derived Demand

In labour markets, the demand for flight attendants and pilots exists only because there is an underlying demand for air travel and tourism.

AFA-CWA

The Association of Flight Attendants-CWA, a trade union representing nearly 60,000 flight attendants from 19 airlines including United Airlines.

Balpa

The British Airline Pilots Association, which represents 85% of commercial UK pilots.

Fuel Cost Percentage

A major variable cost for airlines, accounting for approximately 40% of total costs.

Jet Fuel Price Hike

A significant cost increase in Europe where prices rose from $831\text{ per tonne}$ in February to over $1,500\text{ per tonne}$ in March.

Standard Hedging Strategy

A financial strategy used by airlines like Ryanair to protect against fuel price spikes, allowing them to avoid immediate fare increases.

Blocked Merger (2024)

A federal judge blocked the merger of JetBlue and Spirit Airlines because it would lessen competition by removing a low-cost competitor.

American Airlines and US Airways Merger

An $11\text{ billion}$ merger in 2013 that created the world’s largest airline at the time, now holding a 21% market share.

Airline Passenger Duty (APD)

A UK tax on flights, costing £15 for economy short-haul and between £102 and £106 for long-haul economy.

Regional Air Connectivity Fund

A 2021 subsidy of £4.3 million used to fund flights from Dundee and Newquay to London to reduce geographical immobility.

Heathrow Revenue Impact (COVID-19)

During 2019-21, Heathrow's revenue dropped significantly from £3bn to £1.2bn.