This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
10/30/2010
Runway Closure to Affect Airfares?
I am blogging in reference to an article from Bloomberg Businessweek entitled "JFK: Close a Runway and Charge More." This article spoke of how a runway at JFK International Airport was being closed for 120 days for widening. This is being done to make the runway capable of handling the new Airbus A380, an even larger jumbo jet than what they are accustomed to. They are decreasing arrivals and departures, each by 250 per day. The question posed is whether or not the decrease in the supply of arrivals and departures will reflect an increase in the price for airfares during this 120 day period. The general consensus is that it won't. This is due to the fact that many of the airlines aren't filling all of the seats on their current flights at JFK, leaving some excess capacity. This is also due to the fact that Laguardia and Newark Liberty International airports are all relatively close and all have some excess capacity. When these other options are considered, demand for tickets at JFK will most likely not increase enough to justify higher airfares. On the flip side, when the runway is completed, being able to accommodate the larger airplanes may increase supply enough to lower the price of some flights.
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4 comments:
I agree with the fact that prices should not need to be raised during the 4 months of the runway being closed for the previous reasons. Although it is not needed, management rarely will forgo the opportunity to increase fares and most likely will. However, I do believe that after the runway is improved, the airport management will have, in the long run, the ability to increase hub charges to airline carriers. The capacity of the airport to accomodate the larger planes and volume of flights will allow the airport to meet the demand for more flights which will happen as the economy improves.
I agree that price could in theory stay the same because of the excess capacity. However, supply will be lower and airline carries will take advantage of this by raising their prices. After the larger airplanes are in operation this larger supply will shift the price down lower than what it was before the shut down. I think this is a great example of the law of supply and demand. If supply decreases holding demand constant, price will increase and vice versa. It will be interesting to see what really happens.
Interesting question!
My understanding of airports is that the two big drivers of price are 1) whether one airline has enough market share to exercise monopoly power over the price of individual destinations, and 2) the time of day of the flight.*
I don't see this affecting either one seriously, so I think there won't be much of a price change.
* Time of day is also why you get delayed on the runway. Many people want to arrive as early as they can in the morning, and/or depart late in the afternoon to arrive in early evening. These slots are more expensive, and the airlines actually schedule flights more densely than they can be serviced at gates and on runways - thus the delays.
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