Nevertheless, the previous studies do show a number of
consistent themes. All of the studies reviewed found that
there was a significant demand response to changes in
air travel prices. This indicates that any policy action that
results in higher air travel prices (e.g. passenger taxes,
increased landing fees) will result in a decline in demand.
Critically, however, the extent of that decline will depend
on a number of factors:
• Business vs. Leisure Passengers. In general, all else
being equal, business travellers are less sensitive to
price changes (less elastic) than leisure travellers.
Business travellers generally have less flexibility to
postpone or cancel their travel than leisure travellers.
• Short-Haul vs. Long-Haul Travel. Price elasticities on
short-haul routes were generally higher than on longhaul
routes. In part, this reflects the opportunity for
inter-modal substitution on short-haul routes.
• Airline vs. Market vs. National Elasticities. Some of
the studies supported the concept that the demand
elasticity faced by an individual airline is higher than
that faced by the whole market.
• Income Elasticities. Including income as an explanatory
variable of demand isolates the effects of a shift along
the demand curve (caused by a change in air travel
price) from the effect of a shift of the whole demand
curve (caused by a change in incomes or GDP)
Nevertheless, the previous studies do show a number ofconsistent themes. All of the studies reviewed found thatthere was a significant demand response to changes inair travel prices. This indicates that any policy action thatresults in higher air travel prices (e.g. passenger taxes,increased landing fees) will result in a decline in demand.Critically, however, the extent of that decline will dependon a number of factors:• Business vs. Leisure Passengers. In general, all elsebeing equal, business travellers are less sensitive toprice changes (less elastic) than leisure travellers.Business travellers generally have less flexibility topostpone or cancel their travel than leisure travellers.• Short-Haul vs. Long-Haul Travel. Price elasticities onshort-haul routes were generally higher than on longhaulroutes. In part, this reflects the opportunity forinter-modal substitution on short-haul routes.• Airline vs. Market vs. National Elasticities. Some ofthe studies supported the concept that the demandelasticity faced by an individual airline is higher thanthat faced by the whole market.• Income Elasticities. Including income as an explanatoryvariable of demand isolates the effects of a shift alongthe demand curve (caused by a change in air travelprice) from the effect of a shift of the whole demandcurve (caused by a change in incomes or GDP)
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