Q1
The purposeful delay of an ATC system for controlling air traffic led to the introduction of Coinstar machines which were distrusted by operators in the industry. In the long run, their usage was associated with significant financial implications; for maintenance and purchase. This was further exacerbated by their slow rate of operation. In addition, their usage reduced operating costs both in the short and long run. The change in machine usage also led to the privatization of some airlines to increase the value of return on investment. Privation was aimed at increasing profit margins and streamlining operations.
Q2
To solve the problem of airspace congestion and insufficient funds to for purchase, installation and maintenance of new technology for ATC upgrades include: infrastructural development and expansion to avail more space for airport operations in the long run and streamlining airport operations to reduce operating costs. These steps will free up more funds and space. This can be achieved through enactment of laws including those favoring privatization. Privatization of airports or airlines allows them to tap into significantly large capital base including funds and human capital. This allows them to be better prepared and equipped for the market dynamics, risks and uncertainties. Financial constraint is the leading cause of stagnation of infrastructural development within the aviation industry.
Q3
Economically, airports privatization in the United States of America (U.S.) has increased the financial strength of these airports. This has led to increased traffic and profit margins due to improved airport conditions, staff remuneration and safety equipment. However, some of these airports owe significant sums of money to private investors some of which are countries. Therefore, privatization has given other countries the leeway to have a controlling stake within U.S. This negates the political sovereignty of the nation.
Q4
Price control will ensure that the monopolies in the aviation industry have little space to abuse their market domination especially by hiking prices. In addition, introduction of free market policies that will allow for free entry and exit of into the market including favorable taxes and subsidies will ensure that more firms enter into the aviation industry within a given region.
Q5
- Economies of scale: Offering products at a lower cost with a view of capitalizing on greater sales volumes bars other smaller firms with low sales volumes from entering into the market. It sets a high trading and low price benchmarks that many small firms cannot operate with profitably.
- Sunk costs: These unrecoverable costs are difficult to be raised by smaller firms with low financial muscle. Therefore, they find it difficult to penetrate markets that have high sunken costs.
- Indivisibility of airport investment: Most of the infrastructures in the aviation industry are significantly huge and come as a block, for example, a runway requires a large piece of land to construct. Their costs come as a block. Companies that cannot afford both of these resources will be barred from entering such markets.
Q6.
The airlines have a valid case because subsidies significantly improve the profit margins of these firms. U.S. carriers such as Delta Air Lines should streamline their operations while also improving their service delivery to reduce cost of operations while also delivering quality services. This will ensure that they are competitive in quality service delivery and profit maximization. They should also explore new markets as this will diversify their operations while reducing risks associated with operating in a single market.