Internet Traffic Hijacking On The Rise

Help With An Economics Question? I was given this case that I need to answer for my Econ class but I’m honestly lost! Please help!

In the past 12 months airlines have been confronted with a doubling of jet fuel prices and sharply rising labor costs. At the same time, airlines have been adding new planes to their fleets at a rate faster than the rise in the number of passengers. These factors have put upward pressure on the operating costs of airlines. In the past, such cost increases would have thrown the industry into turmoil. However, despite these latest upward pressures on cost, airlines posted profits of $4.8 billion in 1999. These 1999 profit levels are not significantly below the industry’s record profits of $5.17 billion.
How is it possible for the airline firms to earn high levels of profits while the cost of such critical resources as labor and fuel are rising? The answer is that the airlines have implemented new technologies made possible by smarter computers and the internet technology to counterbalance these rising resource costs. New technologies have been applied to (a) the sale of tickets, (b) the scheduling flights and seating passengers, and (c) the processing of passengers at the airport.
Increasingly, airlines are selling tickets over the internet. For example, Southwest Airlines earns 15 percent of its revenue from internet sales. Recently, four airlines have banded together to develop their own internet ticket selling site to compete with Travelocity, Expedia and other online booking firms that charge airlines transactions fees of as much as 3.5 percent for internet sales. Because of online booking, the airlines have reduced the commissions they pay to travel agents. Some airline executives expect that the commissions paid to travel agents will drop to zero in the next few years.
By using the latest computer technology, airlines have been able to make use of improved yield management systems. These systems allow the airlines to keep track of factors such as ticket sales, number of empty seats, fuel prices, and the interrelationship between flights. With this information the airlines are able to make rapid adjustments in their scheduling of flights and ticket prices in order to maximize profits. Because of improvements in computer technology, airlines are now able to evaluate thousands of possible connections together rather than having to evaluate each flight separately. This allows the airlines to make more efficient use of their resources and to increase their profit margins. For example, if the analyst finds that tickets are selling slowly in a particular market, he is able to run a simulation based on past experience to determine the effect that opening up more seats to the frequent-flier market or selling tickets at a discount over the internet has on revenues and costs. Because of this improved information about particular markets, the airlines are able to limit the discounted sales to a particular market, and do not have to make these discounts available to all markets.
Improvements in computer technology have also reduced the airlines’ costs at the airport. Electronic ticket readers have reduced the costs of boarding passengers and have reduced duplicate seat assignments which delay departure times. To improve employee efficiency at the airport, Continental Airlines uses a single computer system that considers 400 factors to calculate staffing in five-minute block intervals. Hence, it is able to carefully match staffing with fluctuations in passenger traffic.

1.Other things being equal, what effect would rising labour and fuel costs have on the supply of airline tickets? Illustrate graphically.
2.Refer to question 1. What would happen to the equilibrium price and quantity of airline tickets as a result of the rise in labour costs and fuel prices? Illustrate graphically. Assume that other things are equal.
3.Other things being equal, what would be the effect of the technological change in the airline industry on the supply of airline tickets? Illustrate graphically.
4.Refer to question 3. What would happen to the equilibrium price and quantity of airline tickets as a result of the technological change in the airline industry? Illustrate graphically. Assume that other things are equal.
5.Refer to questions 1-4 above. Assume that demand for airline tickets doesn’t change but that the equilibrium price of tickets declines and the equilibrium quantity increases because of the combined effects of the technological change and the increases in fuel and labour costs. What do you conclude?
6.Use the marginal revenue product-marginal resource cost approach to explain how the internet technology has resulted in the decline of airline ticket sales by travel agents.
7.Explain how the recent technological changes in the airline industry make it easier for firms in the airline industry to practise price discrimination.