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Excerpt:
The following is from the June 23, 2008, edition of The Dallas Morning News. SMU Marketing Professor Daniel Howard provided expertise for this story.


Airlines to cut supply of seats to force fare prices up

By TERRY MAXON
The Dallas Morning News

Faced with a looming financial disaster, the U.S. airline industry is boning up on an Economics 101 principle for its salvation: supply and demand.

The airlines are hoping that major cuts in their flying after Labor Day will allow them to create a scarcity of seats sufficient to drive up the average price of an airline ticket, particularly on domestic routes.

But will airlines be able to increase fares enough to cover their additional fuel costs, up 50 percent or more for most major carriers?

Even the airline executives don't know. . .

With one analyst describing the situation as a crisis headed for a catastrophe, the tremendous jump in fuel costs has raised questions about whether airlines will be able to raise their revenue or cut their costs enough to survive for long.

Southern Methodist University professor Dan Howard said if the airline industry faces collapse, the government will step in to save it. But the airlines will survive without government intervention, he said.

"The big question is in what form," said Dr. Howard, chairman of the marketing department at SMU's Cox School of Business.

As prices go up, fewer people will be able to afford to fly. Those who can afford the higher fares will be asking themselves if they want to fly at those prices, he said.

"You're getting a reduction in demand because of that," he said. "Yes, it is an elasticity of demand issue. And as the price goes up, the demand goes down. Now does that mean that the airlines are going to just price themselves out of business? I don't believe so."

Read the full story.

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