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The travel and tourism industry Figure 1: Package holiday market share of the six largest providers, booked by UK residents, 2019 Figure 2: Jet2 package holiday prices to Sorrento Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Question 6
The travel and tourism industry Figure 1: Package holiday market share of the six largest providers, booked by UK residents, 2019 Figure 2: Jet2 package holiday pr... show full transcript
Worked Solution & Example Answer:The travel and tourism industry Figure 1: Package holiday market share of the six largest providers, booked by UK residents, 2019 Figure 2: Jet2 package holiday prices to Sorrento Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Step 1
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.
Answer
Diminishing marginal productivity of labor occurs when adding additional workers results in smaller increases in output. In the context of cabin crew, if United Airlines reduces its cabin crew numbers, they might initially see efficiency gains. However, as staffing levels fall below an optimal threshold, the marginal productivity of the remaining crew members may decline significantly. This could lead to increased workloads, affecting service levels and operational efficiency. Therefore, while the intention may be to save costs and operate more effectively, a significant decrease in staffing could negatively impact the overall customer experience and operational reliability.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions on the social optimum position. Use an appropriate externalities diagram in your answer.
Answer
The social optimum position occurs where the social cost equals the social benefit. By aiming to reduce emissions, Thomas Cook is trying to correct a negative externality—air pollution due to air travel. This plan may shift the long-run average cost curve downwards as operational efficiency improves with newer, less polluting aircraft. The government can illustrate this in an externality diagram by shifting the supply curve to the right, indicating a more socially optimal quantity of flights in relation to the social cost of emissions. This has the potential to not only benefit the company through better public relations and compliance but also improve overall societal welfare.
Step 3
Assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Answer
The principal-agent problem occurs when there’s a conflict of interest between the parties involved, in this case between shareholders (principals) and management (agents). Thomas Cook's directors pursued strategies that appeared to prioritize short-term gains and personal interests over the long-term sustainability of the company. Given the failure of the turnaround strategy and the collapse of rescue talks, one could argue that the management’s decisions were not aligned with the best interests of shareholders or employees, indicating that the principal-agent problem did contribute to its failure.
Step 4
Discuss the proposed government subsidy to prevent Thomas Cook from trading its shut-down point.
Answer
The proposed government subsidy aimed at preventing Thomas Cook from entering a shut-down point could have been seen as a means to stabilize the company during transitional hardships. However, this raises concerns about moral hazard, as it may encourage mismanagement by signaling that government support is assured regardless of performance. From a societal perspective, while the subsidy could help retain jobs and prevent immediate disruptions to the travel industry, it also raises questions about the effective use of taxpayer money and the importance of market discipline. Thus, while financial support might provide short-term relief, it is essential to consider the long-term implications for both the company and the aviation sector.
Step 5
Provide evidence, which the decision by Jet2 indicates.
Answer
Jet2's decision to continue offering holiday packages to Sorrento, despite the struggles faced by competitors like Thomas Cook, illustrates a confidence in the package holiday market's resilience. It indicates a contrasting strategy where Jet2 is actively investing in customer trust and market share, positioning itself as a reliable option amidst turbulence in the industry. This suggests a potential market opportunity for Jet2's growth while highlighting the more fragile state of Thomas Cook, reflecting market shifts and the differing outcomes based on management decisions.