ABSTRACT
This chapter examines the global size and scope of the aviation industry and then turns to the factors driving the demand and supply of air transportation. Globalization broadly refers to the increasing integration of world economies and societies. Impediments to foreign investment and the movement of capital were gradually relaxed. Shipping costs fell, especially with the introduction of containerized ocean and rail cargo transport. Demographic factors— population growth, urbanization, diaspora, and per capita income— are perhaps the most important factors driving the demand for air travel. Globalization and demographics drive increased demand for air travel, but liberalization, or the reduction in rules and restrictions on airline competition, enables more supply of air travel available to consumers. Liberalization reduces the legal restrictions on the addition of airline service to meet passenger demand. Factors of production, on the other hand, determine the cost of providing air transportation. Growing world trade also increases the demand for air cargo.
