Posts Tagged ‘Recession’
Lesson to be Learnt from JAL
Posted on: November 8, 2010
Japan Airlines landing at London airport (Photo by Adrian Pingstone)
According to an article “Japan Airlines ‘hours away from bankruptcy’” in Guardian, the largest Asian airline by revenue, Japan Airlines (JAL) has been operating in bankruptcy with more than $25 billion since January. There are several factors that has lead to one of the country’s biggest corporate failures to date:
- Lifelong payment: JAL has been offering a large sum of pension to its workers, supporting them in their lifetime. As more people have retired from their work in JAL, more money have had to be spent for the non-working workers. Certainly, JAL has not considered in the long term, the effect of lifelong payment.
- Global recession: The whole world has been suffering for these few years from the global recession. Without doubt, the recession has hurt JAL. Because the cost of using JAL is expensive, the demand has fallen, unlike JAL has predicted. Because airlines company is inelastic, JAL has not been able to respond to the fall in demand quickly.
- Government intervention: When the election of the leader of each Japanese provinces, the candidates has promised the citizens to build airports so that it is quicker for the citizens to travel from a place to another. Because of this, there are plenty of empty flights to these small airports that JAL has been gaining no profit from.
In consider of these factors, a restructuring plan has been set on January 19, 2010. The restructuring plan, posted in the article “Progress of JAL Group Medium Term Corporate Plan,” is being orchestrated as part of a government-backed bail out. JAL has planned not only to reduce several domestic routes within Japan but also to reduce deals, giving cut rates to people who flew on their birthday.
With the restructuring plan, JAL is slowly crawling out of the bankruptcy. The recovery from bankruptcy is still a far reach for JAL. However, JAL is doing its best to shine as the best airline of Asia once again. It is now getting attention by creating a “premium economy” service on flights between Narita International Airport and Bangkok, according to a recent article “JAL Starts Premium Economy Service on Narita=Bangkok Route” from 朝日新聞. Premium economy class is a notch above economy class, aimed at business travelers. With better service as in larger table that can accommodate an A4-size notebook computer and a drink as well as a power outlet in each seat, premium economy class attracts more passengers, saving JAL from the bankruptcy.
Clearly, a company has to consider how elastic it is along with how elastic the demand for its product is in order to avoid sudden failure.
Data Response on Champagne
Posted on: November 5, 2010
Text: “Champagne could fall to £10 a bottle as price plummets in recession”
1. Define the following terms: a) demand, b) supply
a) Demand is willingness and ability to purchase a quantity of a good or service at a certain price over a certain period of time.
b) Supply is willingness and ability to produce a quantity of a good or service at a certain price over a certain period of time.
2. Using an appropriate diagram, explain one reason for why the price of a bottle of champagne has fallen?
(Figure 1) Reason of fall in price of champagnes
One reason the price of champagne has fallen from P1 to P2 is the economic crisis, or the recession. Because of economic crisis, people cannot or are not willing to purchase bottles of champagne as much. Therefore, the demand curve has shifted from D1 to D2 in figure 1. At price of P1, only Qx amount to people are willing or able to buy, whereas there have been Q1 amount before the recession. Because of this, there has been a surplus of champagne. Therefore, to reach the equilibrium point (E2), the price of champagne has fallen from P1 to P2.
3. Using an appropriate diagram, explain one reason for why the price of champagne will probably rise next year?
(Figure 2) Reason for rise in price of champagne in 2010
According to the article, the price of champagne is going to rise from P1 to P2 because the “harvest will be almost halved: next year, which is 2010. The fall in supply of champagne will affect the suppliers, moving the supply curve from S1 to S2 in figure 2. If the price is kept same even with low supply, there will be a shortage. Therefore, the price of champagne is likely to rise from P1 to P2 to reach the equilibrium point of E2. By raising the price, Q2 amount of people are willing or are able to purchase champagne and Q2 amount of suppliers can and are wiling to supply it. If the price is not raise, only Qx amount of champagne can be produced.
4. Using information from the text and your knowledge of economics, evaluate a decision not to raise the price of a bottle of champagne over the coming months before Christmas.
Champagne bottle popping (Photo by Betsy Rothstein)
The benefit of not raising the price of champagne is how market will be cleared. Looking at figure 1, we can see that the market is moving towards the equilibrium price of P2 so that there will not be surplus. By not raising the price over coming moths before Christmas, the market will be cleared with Q2 amount of demand and Q2 amount of supply.
The disadvantage of not raising the price may be low revenue from the suppliers. Since champagne could be considered a Veblen good that people demands more as the price rises, there might be increase in demand when the price is raised. The suppliers may be missing the opportunity to raise their revenue.
The suppliers of champagne will not be happy about the decision of not raising the price over coming moth of Christmas because it is predicted that “the cost of some vintage champagnes could fall as low as £10 in time for Christmas.” Clearly, the suppliers of champagne will not gain much revenue than before.
The consumers, however, will be extremely happy about the decision because the price of champagne is cheaper than before. More people will be willing and able to purchase cheap champagnes as “there is going to be copious cheap champagne around in December.”
The suppliers of complementary goods, such as cheese, will also be happy about the decision because as the demand for champagne rises, the demand for their product will also increase.
On the other hand, the suppliers of substitute goods, such as beer, will not be happy because as the demand for champagne rises, the demand for their product will decrease.
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