Question

• Describe how fuel and labor have impacted motor carrier cost structures and how they have altered motor carrier operations.
•         How does fuel cost and efficiency affect both air carrier costs and pricing?
•         How does fuel cost and efficiency affect Railroad costs and pricing?
•         What would be the impact of higher fuel charges on the water carrier industry? Provide rationale for raising their user charges.
• ·       Which mode of transportation would suffer most from higher fuel prices? Benefit the most?

Answer 1

Discuss the ways in which air carriers compete with each other. How have regulatory changes affected this competition?

Deregulation of 1977, and the air traffic controller strike of 1981, resulted in an increase in the number of airlines entering the market and competing for passengers on major carriers. The major carriers realized they could be competitive by flying high density routes and leave less dense routes to national or regional carriers. All air carriers compete with each other by means of rates, frequency of flights and timing of flights. The intensity of fare wars, which was driven by new entrants into the market caused overcapacity by offering reduced fares causing weaker carriers to eventually exit the market.Service competition is another way they compete by offering more desirable frequency and timing of flights on popular routesAdvertising amenities and frequent flyer miles is very attractive to some, while no frills low rate service is attractive to others. Competition among air carriers is mostly intramodal as they are not usually cargo carriers. However, competition for cargo has become intense as well. Since deregulation, air carriers publish competitive rates and low transit times between given points. Door-to-door service is offered through contracts as with FEDEX and UPS to keep up with the demand of online shopping. A number of surface carriers have now added airline cargo to compete.

How does fuel cost and efficiency affect both air carrier costs and pricing?

Fuel costs and efficiency affect both air carrier costs and pricing. Fuel costs are 34% of the 80% of variable costs and a major element of the operating costs. Fuel costs vary by the consumption of different types of aircrafts used. It is important to use measures of operating efficiency such as keeping the operating ratio as low as possibleand keeping the load factor as high as possible to increase efficiency. When fuel costs rise, it is a problem for airlines. As a consequence, air carriers are substituting smaller planes on low-density routes and eliminating service completely on other routes. Fuel costs and pricing are proportionate to each other; when one goes up, so does the other.

How does fuel cost and efficiency affect Railroad costs and pricing?

The fuel cost can increase the Railroad costs and this in turn will result in an increase in the prices charged to the customers. The changes in fuel cost can affect the operations efficiency which can in turn affect the revenues.

A significant portion of the operations cost of the railroad is the fuel. The changes in fuel prices will cause a significant impact on the efficiency and prices charged to the users of the railroad. When the fuel cost increases, the operations efficiency decreases. It becomes more costly to operate the Railroad. Supposing the pricing is maintained, this would result in lower operating profits. If fuel cost declines, there's increased efficiency. This in turn will result in increased operations profits. The railroad may maintain the prices when fuel prices lowers but when they increase they are also forced into making necessary adjustments to avoid making losses.

What would be the impact of higher fuel charges on the water carrier industry? Provide rationale for raising their user charges.

The Impact of higher fuel charges on the water carrier industry: The water carrier industry cost structure is one with very low fixed costs and high variable costs. Despite being the second most fuel efficient form of carrier transportation, the bulk of variable costs is in fuel. The only costs to which the carrier can defray the fuel increases are the user fees for lock and dock fees and fuel taxes.

Which mode of transportation would suffer most from higher fuel prices? Benefit the most?

Individual or private transportation using own vehicles, will suffer most when the fuel price increases. It happens, because increased expenses can be distributed upon others and most of the time, these vehicles run on less than full capacity, though the fuel consumption remains same.

No any transportation gains from the price rise of gasoline, but the revenue of the shared transportation methods, because more people start opting for it. Further, increased cost of gasoline, can be passed on to the huge number of commuters. Though, it is clearly covered by increased number of commuters and higher amount of revenue is generated.