The impact of the economic environment
Changes in Supply and demand
Supply and Demand are the backbone of the economy. Once Supply and Demand meet there is an Equilibrium. This is the point where buyers and sellers meet.
Supply and Demand directly correspond because they both affect eachother. When the Demand is high, the supply is high as well. When a product has a lot of demand it means it that a business will produce more.
1995-2008
When the business first started in 1995, supply of raw materials wouldn’t have been that high in comparison to how much it increased over the years. This is because they couldn’t afford to expand that much and buy new planes. However the supply of labour was very high because they were a new company so they had loads of job openings provided to unemployed people. Demand would have been low at first because awareness of the business would have been low. But over time the demand would have increased but supply decreased because there were only so many planes and flights available. Supply of raw materials increased gradually over this whole period because when they first started, they only had 2 planes, but by 2005 they purchased their 100th aircraft and now they have over 200 aircrafts. This is a response to the increasing demand over the year. Demand remained high throughout the boom period, even during times of conflict such as 9/11. According to Easyjet’s flight reports, demand was still high after the events of 9/11. A similar thing happened after the events of the volcanic ash cloud, despite the unpleasantness, customers remained eager to buy holiday tickets. This is because the demand for travel will never go out of fashion, but despite the changing of ticket pricing, they still remain affordable because they are a low budget airline.
2008-2010
Changes in supply and demand can be influenced by the economic boom and slump periods. If the economy is in a state of recession, then there would be less demand and a higher supply because holidaymakers can't afford to go on holiday so there would be a higher amount of supply availability such as plane tickets. Supply of labour decreased over this period and Easyjet had around half of the amount of employees they had when they first started. Surprisingly, demand remained high throughout this period because it is a low budget airline, but it is considerably lower compared to what it was during the growth period. Supply of raw materials increased after the economic slump because Easyjet invested in constructing an anti ash cloud device for their air crafts to still abide to the demand of the customers. This was because they could afford the investment.
There are many causes for change in supply and demand in the economy. As I mentioned before, there is a demand curve. This curve states that the quantity of goods and services produced and sold decreases when prices increase. This can happen when supply is low or the economy is in a state of recession. The supply curve however, shows us that the business will produce more goods when prices increase. When you put the two together you can see an equilibrium point. This is the point in which supply and demand crossover, for example, if people have a less income due to a lack of labour supply, then there will be less demand for products including flights for easyjet.
Demand can change if competition reduce their selling prices because customers would just opt for them instead. It can also change if there was an increase in substitute goods and the customer’s tastes change and fashions change. For example, flights to certain countries will be in higher demand at certain times of the year.