ECONOMICS

Economics

Economics

Task 1

Low Cost Airline Industry and Contestable Market

In context of low cost airline industry, contestable market is one in which the entry is completely free and exit is absolutely devoid of costs. Freedom of entry does not mean it to be completely devoid of cost s, but there is no discrimination against of potential entrants. The absolute freedom of exit means that any company from airline industry can leave the market without any hindrance and in the process of output can recover any costs it had incurred during the process of entry. In a contestable market, a difference of a perfect market, it is not necessary that the companies from low cost airline industry are numerous, small, or independent in their process of decision (Adil, 2006). A market perfectly competitive is a perfectly contestable market, but not vice versa.

Airline industry does not provide any more contestable than a rate normal for profit , even if that is oligopolistic or monopolistic, precisely because the freedom of entry. For the same reason, in a market contestable there can be no kind of inefficiency in the production of balance of the industry (Court, 1970). This is due to any benefit superior to normal, like any cost unnecessary, is an invitation to the entry in the low cost airline industry.

The main characteristics of a perfectly contestable market for low cost airline industry include three main features which are mentioned below:

- No entry or exit barriers

- No sunk costs

- Access to the same level of technology (to incumbent firms and new entrants)

The above mentioned characteristics are crucial for the low cost airline industry as for the core business activities of companies in the airline industry, it is important to focus on these key characteristics which can play significant positive role in commencing the business activities.

Task 2

The main air lines in UK include the following:

British Airways and

Ryanair

British Airways

British Airways is one of the world's leading scheduled premium international airlines. At the end of March 2010, the company had 238 aircraft in service. The company serves more than 300 destinations worldwide. The company is headquartered in Harmondsworth, the UK and employed 41,494 people. The company recorded revenues of £ 7,994 million ($ 12,761.1 million) during the financial year ended March 2010 (FY 2010), a decrease of 11.1 % compared to FY 2009.

The company operates through two business divisions: airline business and non-airline business. The airline business comprises the company's main scheduled passenger and cargo operations. The company's passenger transportation services include, domestic and international air transport, scheduled as well as chartered services. In FY 2010, the company carried more than 31.8 million passengers. During the year, the revenue passenger kilometres (RPK) and available seat kilometres (ASK) stood at 110,851 million and 141,178, respectively. The main destinations of British Airways include Barcelona, Dublin, Edinburgh, London etc.

Ryanair

Ryanair Holdings operates at low-fares scheduled passenger airline serving short-haul, point-to-point routes between Ireland, the UK, Continental Europe, and Morocco. The company offers more than 1,300 scheduled short haul flights per ...