TPJC_H2_Economics _case study

TPJC / Economics / 2008 Preliminary Examination / H2 / Paper 1 1 TAMPINES JUNIOR COLLEGE Preliminary Examination 2008 ECONOMICS 9732/01 Higher 2 Paper 1 (Case Study) Monday 18 August 2008 13 30 – 15 45 (2 hours 15 min s) INSTRUCTIONS TO CANDIDATES Write your name and civics class in the spaces provided on the answer paper. Answer all questions. Write your answers on the separate answer paper provided. If you use more than one sheet of paper, fasten the sheets together. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for good English and clear presentation in your answers. This question paper consists of 11 printed pages.

TPJC / Economics / 2008 Preliminary Examination / H2 / Paper 1 2 Answer all questions. Question 1 Rising oil prices putting pressure on the airline industry Extract 1: Trouble ahead for the world's airlines High oil prices and widespread economic gloom are putting the squeeze on the airlines. Delta and Northwest have plans to merge despite objections from powerful unionised pilots. Costs are not the only problem. Just as worrying is that passenger numbers look vulnerable to a slowdown in the world’s big economies. Merging is one way that the industry will cope. Airlines are also being forced to cut costs and capacity. American Airlines said that it would slash domestic capacity by as much as 12% by the end of the year, with others promising steep cuts too. Many are introducing fuel surcharges and other costs for travellers, for example for carrying baggage in the hold or for in-flight meals and drinks. Such measures, however, will only go so far to mitigate the high costs. Worse, the more ruthless the airlines become in cutting costs, the more the impact on travellers. Weaker airlines will be knocked out of the sky and fares will rise. Some airlines may not have the financial means to replace older gas-guzzling aircraft with newer more frugal models. That sounds unpleasant for airlines and their passengers. Consolidation and lowering capacity may mean that profitability eventually improves again, but a period of widespread, dirt-cheap, air fares seems to be coming to an end. Some industry critics are sceptical of the airlines' claims about the efficiency gains that mergers of airlines will make possible. They counter that the airlines are already big enough to enjoy economies of scale and that the difficulties of knitting together complex organisations with different cultures will distract managers and divert scarce cash. Low-cost carriers, they say, will quickly move to occupy abandoned hubs and routes, replenishing capacity almost as soon as it is reduced. The success of big airline mergers is certainly not guaranteed. More than two years after their merger, US Airways and America West are still struggling with integration. That sa