ABSTRACT
This Chapter explores the underlying demand and supply relationships in aviation markets and how airline market structures have been shaped by government regulation and institutions as well as changing technology of aircraft and aircraft engines. Airlines rely on upstream suppliers of infrastructure like airports, airframe manufacturers including Boeing and Airbus and services such as insurance and maintenance. The airlines also rely on downstream firms to distribute their product via the Internet, or distributors such as Global Distribution Systems (GDSs) and freight forwarders. The demand for airline services is a derived demand, that is passengers and freight travel by air because they need to get between two locations quickly. It is this ‘need’ that stimulates demand and revolves around economic activity. Thus, demand depends on income, economic growth and income distribution. The supply of airline services is determined by the expected profits to airlines from providing a service. These profits are significantly affected by how the airline structures its network and the structure of the domestic and international network is determined in large part by economic regulation.
