ncome Elasticities
The main focus of the research was on price elasticities.
Nevertheless, the analysis also considered the sensitivity
of demand to changes in incomes. The econometric
research and review of previous estimates found that air
transport income elasticities were consistently positive and
greater than one. This suggests that as households and
individuals get more prosperous, they are likely to devote
an increasing share of their incomes to discretionary
spending such as air travel.
The statistical evidence suggests:
• Developed country travel markets have base income
elasticities for short-haul routes of around 1.5. At the
national level, this declines to an estimated income
elasticity of 1.3.
• US travel markets have slightly higher income
elasticities with air travel perhaps less budget-oriented
than in other developed economies. Using the DB1A
data suggests short-haul route income elasticities of
1.8 at the route level and 1.6 at the national level.
• There is some evidence that income elasticities
decline as countries become richer and markets
mature. Developing countries typically have a greater
responsiveness, with an estimated short-haul income
elasticity of around 2.0 at the route level and 1.8 at the
national level.
• There is also evidence that long-haul journeys are
seen by passengers as different, more desirable, to the
more commoditised short-haul markets, and so income
elasticities are higher the longer the distance. This
suggests that middle to lower income individuals are
more likely to travel on short to medium haul routes,
with higher incomes leading to a higher frequency of
long-haul travel.
The income elasticity results are based on information
from the review of previous studies and results from the
new econometric research. Table 4 outlines the estimated
income elasticities for different markets at the route and
at the national level.