The appropriate value of a demand elasticity will vary in
accordance to the context in which they are considered.
For air transport there are five main levels (for the scope
of the market) for which demand elasticities can be
estimated:
• Price Class Level. This the most disaggregate level,
where passengers make a choice between different
price classes (e.g. first class, business class, economy
class) on individual airlines.
• Airline / Air Carrier Level. This reflects the overall
demand curve facing each airline on a particular route.
• Route / Market Level. At the route or market level
(e.g. London Heathrow–Paris CDG or London–Paris),
travellers faced with a price increase on all carriers
serving a route (e.g. due to an increase in airport fees
and charges), and have fewer options for substitution.
• National Level. At the national level, travel prices are
increased on all routes to and from a particular country
(e.g. due to a higher national departure tax), giving
travellers fewer options for avoiding the price increase.
• Supra-National Level. This represents a change in
travel prices that occurs at a regional level across
several countries (e.g. an aviation tax imposed on all
member states of the European Union). In this case,
the options for avoiding the price increase are even
further reduced.
In each of the five levels of aggregation, different
cross-price elasticities exist, reflecting the availability of
substitute options. The own price elasticity at one level of
aggregation can reflect both the own price and cross price
elasticities at other levels of aggregation. The interaction
between these effects adds significant complexity to the
analysis, requiring clarity on which own price and cross
The appropriate value of a demand elasticity will vary inaccordance to the context in which they are considered.For air transport there are five main levels (for the scopeof the market) for which demand elasticities can beestimated:• Price Class Level. This the most disaggregate level,where passengers make a choice between differentprice classes (e.g. first class, business class, economyclass) on individual airlines.• Airline / Air Carrier Level. This reflects the overalldemand curve facing each airline on a particular route.• Route / Market Level. At the route or market level(e.g. London Heathrow–Paris CDG or London–Paris),travellers faced with a price increase on all carriersserving a route (e.g. due to an increase in airport feesand charges), and have fewer options for substitution.• National Level. At the national level, travel prices areincreased on all routes to and from a particular country(e.g. due to a higher national departure tax), givingtravellers fewer options for avoiding the price increase.• Supra-National Level. This represents a change intravel prices that occurs at a regional level acrossseveral countries (e.g. an aviation tax imposed on allmember states of the European Union). In this case,the options for avoiding the price increase are evenfurther reduced.In each of the five levels of aggregation, differentcross-price elasticities exist, reflecting the availability ofsubstitute options. The own price elasticity at one level ofaggregation can reflect both the own price and cross priceelasticities at other levels of aggregation. The interactionbetween these effects adds significant complexity to theanalysis, requiring clarity on which own price and cross
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