Impact of Crude Oil Price on Airline Ticket Prices

Running head: PRINCIPLES OF ECONOMICS
Principles of Economics
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PRINCIPLES OF ECONOMICS1
Table of Contents
Answer to question 1..................................................................................................................2
Answer to question 2..................................................................................................................4
Answer to question 3..................................................................................................................5
References..................................................................................................................................7

PRINCIPLES OF ECONOMICS2
Answer to question 1
In the given article, it is stated that in 2018 crude oil price has increased nearly by 57
%. Crude oil price is currently marked at $75 per barrel. The price of jet fuel is likely to
increase more and it possibly will reach $84 per barrel very soon due to this rise in crude oil
price. The fuel expense shares the 25 per cent of the total operating expenses of the airlines
(Doganis 2013). Therefore, it is obvious that rise in jet fuel price will increase the operating
expenses of the airlines and as a result, the price of air tickets will rise and the burden of price
of oil will be passed on to customers.
Figure 1: Rise in
fare price
Source: (Created by the Author)
The above figure depicts that owing to rise in price of the jet fuel, the airline would
decrease their number of flights to decrease their expenses of operation. Thereby it increases
the price of the air tickets from P to P1 and the number of flights run by the airlines decreases
from Q to Q1 (Pindyck and Rubinfeld 2014). However, if the demand remains the same so