Delta Scrubbing Cairo Route


Delta is no longer planning to resume it's flight route to Cairo, Egypt from New York due to low demand for travel to there. The airline had suspended flights back in February because of the civil unrest in Egypt, but now has decided to not restart its flights to Cairo. Delta is also suspending flights from New York to Amman, Jordan to help cut back on its fuel consumption. Delta's partners, Air France and KLM, are still offering flights to these cities through Paris and Amsterdam, though.

Because of the revolution in Egypt, people's interest in Cairo as a Tourist location shrunk, leading to a decrease in demand for flights there. Also, because of the current instability of the government of some oil-exporting North African and Middle Eastern countries, there has recently been a sharp increase in the cost of fuel. Since fuel is an indispensable input for an airline company, the increase in the price of oil resulted in the decrease in supply of flights across the Atlantic, namely Amman in this example.
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Questions:
1) How does the increase in the price of oil affect the demand curve?
2) Why does the increase in oil prices decrease the supply of flights?
3) What economic situation is created by the increase in oil for airlines such as Delta?

Answers:
1) The increase in the price of oil raises the cost, resulting in a decrease in demand.
2) The price of inputs contributes to the overall price of the product, or flight in this case, which makes the supplier decrease the supply in order to keep cost low. The supply curve shifts to the left because of the increase in price of oil.
3) Because there are only a limited amount of flight alternatives to Delta, the increase in oil pricesraises the price for flights as well. Since the prices are raised while imput remains the same, is called cost-push inflation.

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Previous Cut-Backs:
  1. In last year alone, Delta managed to increase revenue by advancing Invested Capital returns, improving pre-tax income and reducing net debts exponentially. Although Delta manages to top the list of other airliners in Operating Income, thier still forced to cut back certain flight routes that arent producing desired incomes.

Citations:

http://www.ajc.com/business/delta-scrubbing-cairo-route-900764.html


Specific Work Done:

  • First Paragraph- Chris Bebout
  • Second Paragraph- Cody Dodds
  • Questions- Chris Bebout
  • Answers- Cody Dodds
  • previous cutbacks- Cody Dodds