Europe)• . A high price elasticity was found for this market, with an elasticity multiplier of 1.2. This market has long been developed by low fare charter airlines. Price is likely more important than frequency in this market than in US domestic markets
Trans Pacific (North America – Asia)• . By contrast, markets across the Pacific are estimated to have a much less elastic response, with an elasticity multiplier of 0.6. There are no charter services and there remain markets with less liberal pricing regulation. There are early signs of long-haul LCCs emerging but at present this market shows much less sensitivity to travel price than the US domestic market or the trans Atlantic market.
Europe-Asia• . This market is estimated to be slightly less price sensitive, with an elasticity multiplier of 0.9. This result is in contrast to the results found in the respective intra markets of Europe and Asia, and provides further evidence for lower elasticities on long-haul and intercontinental air transportation.
Appl ying the Elasticit y Estimates stimates and Multipliers ultipliers
Table 1 provides a guideline for the estimated price demand elasticity by level of aggregation and by region. It multiplies the estimate for the relevant level of aggregation by the relevant short-haul and geographic elasticity multipliers.
Table 1: Estimated Price Elasticities of Passenger Demand
By way of illustration, elasticities for different situations can be developed by selecting the relevant base price elasticity and applying the relevant multipliers. For example:
To examine the impact of an EU-wide aviation tax on • short-haul markets, the elasticity would be developed as follows:
- Base multiplier: -0.6 (supra-national)
- Geographic market: 1.4 (Intra Europe)
- Short-haul adjustor: 1.1
The price elasticity would then be calculated as: -0.6 x 1.4 x 1.1 = -0.92
To examine the impact of a UK tax on aviation • on Trans Atlantic traffic, the elasticity should be developed as follows:
- Base multiplier: -0.8 (national)
- Geographic market: 1.2 (Trans Atlantic)
The price elasticity would then be calculated as: -0.8 x 1.2 = -0.96
To examine the impact of an increase in airport landing • fees on a particular short-haul route in Asia, the elasticity should be developed as follows:
- Base multiplier: -1.4 (route)
- Geographic market: 0.95 (Intra Asia)
- Short-haul adjustor: 1.1
The price elasticity would then be calculated as: -1.4 x 0.95 x 1.1 = -1.46