price elasticities were measured and controlled for For The studies including the income example, an analysis of route-evel elasticities which does positive income elasticities, with air travelincreasing at control for toute substitution effects may be more a higher rate than income growth. appropriate for a national level elasticity. The evidence and discussion provided in this report DATA SOURCES focuses on the appropriate elasticiti for the route, national and supra-national level of aggregation new econometric analysis undertaken by InterVISTAS Consulting used three different dataset EXTENSIVE REVIEW US Department of Transport database 1B (DB1B). DB1B provides data on the US domestic aviation OF PREVIOUS STUDIES market Traffic figures reflect the actual number of InterVSTAS Consulting passengers on a particular route, while average price on demand elasticities. reviewed the available literature reflects the estimated average one-way travel price The review of previous studios paid (in USD) helps to provide a greater understanding of air travelprice elasticities and provides important insights for the new ATA's Passenger Intelligence Service (PaxIS) econometric analysis. The different studies produced a database. This database captures market data wide range of air travel price elasticity estimates, varying through IATAs Billing and Settlement Plan (BSP), it in accordance with the markets analysed, the time period provides traffic and travel prioe estimates for airport- assessed, the methodology used and the available data pair routes around the world (eg JFK LHR CDG- Even within some particular studies, a range ofelasticities FRA), However data is only available from 2005 are estimated for different markets. Nevertheless, the previous studies do show a number of UK International Passenger survey (ps), The IPs consistent themes. All of the studies reviewed found that is a survey of passengers entering or leaving the UK by there was a significant demand response to changes in air, sea or the Channel Tunnel This report exclusively air travel prices This indicates that any polcy action that used outbound to Western Europe leisure air passenger results in higher air travel prices (eg, passenger taxes, traffic data from the PS Traffic figures reflect the increased landing fees) will resul decline in demand. h a estimated number of passengers on a particular Critically, however, the extent of that decline will depend airport pair route, while average travel proe refiects the on a number of fact estimated average price paid (n GBP) Business vs. Lesure Passengers In general all else being equal business travellers are less sensitive to ECONOMETRIC RESULIS price changes (ess elastic) than leisure travellers. Business travellers g have less fiexibility to The new econometric analysis is comprehensive, based or cancel their travel than leisure travellers, on over 500 regression models Bulding on the previous Short-Haul studies, the new econometric analysis develops a set of routes were generaly higher than on ong- depth that haul routes In part, this reflects the opportunity for be applied to the analysis of different air markets. Base elasticity estimates are developed for the different levels inter modal substitution on short-haul routes. of aggregation (route national and supra-national ievel) Airline vs Market vs National Elasticities. Some of Multiplicative estimates were then developed to adjust he elasticities to reflect specific geographical markets, the studies supported the concept that the demand elasticity faced by an individual airline is higher than i) Level of Aggregation that faced by the whole market Income Elasticities. Including income as an explanatory In summary, the econometric results found that at the route level (where competition between airlines of city variable of demand isolates the effects of a shift along sitivity of demand to price the demand curve (caused by a change in air travel price from the effect of a shift of the whole demand is very high. However, at the national or regional curve (caused by a change in incomes or GDP). air travel is relatively price insensitive. The results support demand elasticities oft