ii) Short-Haul vs. Long-Haul
• The review of previous research found consistent
results showing that air travel price elasticities on
short-haul routes were higher than on long-haul
routes. This largely reflects the greater opportunity
for inter-modal substitution on short haul routes
(e.g. travellers can switch to rail or car in response
to air travel price increases). While the geographical
breakdowns outlined in the next section capture some
variation by length of haul, there is still considerable
variation within each market. In particular, very shorthaul flights (approximately less than 1 hour flight time)
are subject to greater competition from other modes.
• On this basis an elasticity multiplier of 1.1 is used
to adjust air travel price elasticities for short-haul
markets. This does not apply to the analysis of transAtlantic or trans-Pacific markets, which are entirely
long-haul, with virtually no opportunity for modal
substitution.
iii) Geographic Market Analysis
The econometric analysis of the IATA PaxIS Plus data
found statistically significant differences between
different geographic air travel markets. The estimated
elasticity multipliers for each market, along with the
reasons for why it is needed, are:
• Intra North America. This is our reference point
with an elasticity multiplier of 1. The market is well
established with relatively high levels of capacity and
traffic. Prices tend to be low, while distances are short
to medium haul.
• Intra Europe. Traffic in this region is estimated to be
more elastic, with an elasticity multiplier of 1.4. Intra
European routes typically have shorter average travel
distances, strong competition from other transport
modes and the use of very low prices in several
markets. The high market share of charter airlines is
being eroded by very low fare LCCs.
• Intra Asia. Moderately more inelastic estimates were
found in this region, with an elasticity multiplier of
0.95. LCCs are now emerging in Asia but average
distances are longer, and the key middle class is still
relatively small in many markets in this region.
• Intra Sub-Saharan Africa. This region is estimated to
have a relatively inelastic demand compared to North
America, with an elasticity multiplier of 0.6. African
economies have a much smaller middle class. Travel
is concentrated among higher income individuals who
are less price-sensitive.
• Intra South America. This region is estimated to be
at the more elastic end of the scale, with an elasticity
multiplier of 1.25. There is an emerging middle class
making the region more price elastic plus LCCs are
emerging in Brazil, Chile and Mexico.
• Trans Atlantic (North America – Europe). A high
price elasticity was found for this market, with an
elasticity multiplier of 1.2. This market has long been
developed by low fare charter airlines. Price is likely
more important than frequency in this market than in
US domestic markets
• Trans Pacific (North America – Asia). By contrast,
markets across the Pacific are estimated to have a
much less elastic response, with an elasticity multiplier
of 0.6. There are no charter services and there remain
markets with less liberal pricing regulation. There are
early signs of long-haul LCCs emerging but at present
this market shows much less sensitivity to travel price
than the US domestic market or the trans Atlantic
market.
• Europe-Asia. This market is estimated to be slightly
less price sensitive, with an elasticity multiplier of
0.9. This result is in contrast to the results found in
the respective intra markets of Europe and Asia, and
provides further evidence for lower elasticities on longhaul and intercontinental air transportation.