If passengers are relatively insensitive to air travel prices
at a national aggregate market level, and even less so at
a supra-national level, this strongly suggests that falling
real air travel prices have not been the main driver of air
travel growth2. Falling real air travel prices are important
in passengers switching from one airline to another,
and from one destination to another, but are much less
important in driving aggregate national-level air travel or
tourism growth.
The growth of incomes, often proxied by GDP, has been
found to be the fundamental driver of the demand for
air travel. During the past twenty years global passenger
traffic has expanded at an average annual growth rate of
5.1%, while global GDP grew by an average annual rate
of 3.7% over the same period. That implies an average
income elasticity of 1.4, similar to the average estimated
above for developed economies. The implication is that
economic growth can explain most of the expansion
in air travel seen in the past twenty years. The fall in
real air travel prices has played a part, but mostly in
diverting travel between airlines and markets rather than
significantly boosting overall travel volumes. In addition,
economic growth is now increasingly being driven by
developing economies, where income elasticities are
higher. Therefore, the underlying drivers for overall
air travel growth are likely to remain strong for the
foreseeable future.