Breaking out my Economics major...
Demand is Elastic, increase price, demand falls by more than increase. Thus, you lose money.
Demand is Inelastic, increase price, demand falls by less than increase. Thus, make more money.
Airlines if facing elastic demand curve, reduce supply= increase price, demand falls by more than increase in price=> airlines die.
More info:
http://en.wikipedia.org/wiki/Price_elasticity_of_demand
Originally Posted by
raehl311
Eh?
Shrinking works just fine with elastic demand - you increase the price, less people fly, and you keep only the capacity to service the reduced demand at a higher margin.
What's interesting is that a wee bit shy 10% of oil consumption in the US is jet fuel. If there's half as many flights, does that help with the regular gas prices a bit?