How can a government regulation negatively impact airline revenue?

Answer 1

Government regulation could negatively impact airline revenue in a myriad of ways. For example, government could set a ceiling on ticket prices airlines are allowed to charge; that would be one of the most direct ways. They would do this for a number of reasons, but that's another discussion. Also, some airlines receive subsidies from the government; if the government were to take that away, then revenue would be negatively impacted.

Airlines could also be negatively affected indirectly. For example, if government adds some regulatory barriers that increases the price of jet fuel (an input for airlines). This could happen in many ways; one way would be the government imposing a new safety rule that requires airlines to take extra precaution with storing reserve fuel. We know extra steps will always amount to extra costs.

One more example: let's assume the government decided to limit the maximum number of passengers on a plane as a result of Covid-19; that would definitely hurt revenue. The airline still pays the same amount to fuel the plane and run operations to get it to its destination, however it gets lower revenue. This was a quick and dirty explanation; hope it helps.

Best Regards