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Case Study 1 Coronavirus: Airlines in Hong Kong ground planes and slash flights as industry braces for impact Hong Kong airlines have slashed their number of flights in an attempt to weather the impact of the coronavirus outbreak. Flagship carrier Cathay Pacific and its subsidiary Cathay Dragon announced on Friday that it will reduce its capacity for passengers by 96 per cent in April and May due to a "severe drop" in demand, following worldwide travel restrictions. Similarly, budget airline Hong Kong Express has said it will halt flights entirely from Monday onwards until April 30. First detected in China's Hubei province, Covid-19 has infected more than 244,000 people worldwide, leading to at least 10,000 deaths across 160 countries and territories. Hong Kong has reported 208 cases of infection and four deaths. 'Unprecedented" challenges Cathay Pacific Chief Customer and Commercial Officer Ronald Lam said in a press release that the airline intends on only maintaining the minimum number of flights to and from key destinations: "While our freighter network remains intact, we are also ramping up our cargo capacity by mounting charter services and operating certain suspended passenger services purely for airfreight to meet cargo customer demand." "We need to take difficult but decisive measures as the scale of the challenge facing the global aviation industry is unprecedented. We have no choice but to significantly reduce our passenger capacity as travel restrictions are making it increasingly difficult for our customers to travel and demand has dropped drastically," he added. Hong Kong Express said 23 of its 25 routes in Asia - consisting of roughly 2,000 flights - had already been cancelled. "We are looking to resuming flight operations on I May 2020 and closely monitoring the development of the situation," its statement read. Passengers affected by the suspension may opt for a full refund, date or route change to their original itinerary- Asked on Friday whether the government would assist the aviation industry, transport chief Frank Chan did not directly answer. "[We are given to understand that the company will take good care of the passengers and also their staff despite the decision to suspend air flight operation from now... until end of April." (Source: Jennifer Creery, Hong Kong Free Press (20 March 2020). Answer ALL Questions (Each scores 10 marks) I)"Principle #6: Markets Are Usually a Good Way to Organize Economic Activity", Based on the information in this article, apply the Principle #6 along with the Law of Supply and Demand and Concept of Market Equilibrium and evaluate how the airline industry will resume to market equilibrium in future. (10 marks) 2) With regard to the public policy toward monopolies in airline industry, the Hong Kong Government may consider to respond to the problem of monopoly in many ways. Choose one of the following policies, a) turning Cathay Pacific Airlines into public enterprises (HKSAR Airline) or b) doing nothing at all? Explain with supportive arguments. (10 marks) 3) In BUS10407 Economics I, students have learnt ten principles of Economics. The Principle #1: People Face Trade-offs: "There is no such thing as a free lunch!" and "To get one thing, we usually have to give up another thing" Write an example of your personal life experience that you face trade-offs. (60-80 words) (10 marks)
