Advanced Aviation Economics - Discussion

Part 1

Here's an excerpt from a recently published airline management text:

"One of the most significant developments has been the emergence and rapid expansion of a new type of airline business model that occurred as a consequence of deregulation and liberalization. Freed from the capacity and fare restrictions that had characterized airline operations prior to 1978 in the US and the 1990s and 2000s in Europe and other world markets, a number of airlines and new entrant operators developed a model based on minimizing costs and offering low fares" [Whyte, R. & Lohman, G. (2017). Airline business models. In L. Budd & S. Ison (Eds.), Air Transport Management (p. 109). London & New York, Routledge.

Briefly, explain the application to Porter's Five Forces model.

Part 2

After the class session, consider this problem and post your solution. Suppose your firm is considering whether to purchase CFL or LED light bulbs for office lighting. A CFL bulb is priced at $18, lasts 3 years, and consumes 12 watts per hour or about $3.50 per year in electricity. The LED bulb is priced at $40, lasts 9 years, and consumes 8 watts per hour or about $2.34 per year. Using discounted cash flow analysis, compare the total costs of the two bulbs over 9 years. Use at least two different discount rates to provide a sensitivity analysis. (Hint: The CFL bulb must be replaced at the beginning of years 3 and 6, so add the cost of replacement to the cost of electricity in those years).