Soaring Jet Fuel Prices and U.S. Airlines

~ EconEye Admin

Jet fuel prices rose from $2.50 per gallon before the Iran war broke out to $ 4.13 on May 1 leading airlines to raise ticket prices and reduce the number of routes. The shock was especially severe for Spirit Airlines, which exited the market on May 2.—wsj.com and airlines.org

Use the following notation to work the questions in the multiple choice quiz below:

Price — P

Average total cost — ATC

Average variable cost — AVC

Average fixed cost — AFC

Marginal cost — MC

Answer the following questions to check your understanding of the story.

How has the rise in the price of jet fuel changed the cost curves of an airline?

It has made _____ higher for every flight, but not changed _____.

What is an airline’ profit-maximizing response to a rise in the price of jet fuel?

An airline’s profit-maximizing response to a rise in the price of jet fuel is _____ in the number of miles flown and a _____ in the price of a ticket.

Which routes have been shut down by the airlines after the rise in fuel cost?

Airlines shutdown routes where _____.

Which routes do airlines continue operating despite incurring economic losses?

Routes where ______.

Which routes are still profitable and what happens to their profitability after the rise in fuel cost?

Routes where ______ but profits are _____ after the rise in jet fuel price.

Why did Spirit airlines exit the market?

Spirit exited because it’s ______, and it expected its economic losses to be ______.

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