The elasticity of air travel demand varies according to the coverage and location of the market in which prices are changed and the importance of the air travel price within the overall cost of travel. The appropriate elasticity to use will depend on the type of question being asked. What is the price that is being changed (e.g. an individual airline ticket price or prices within the market as a whole)? What is the unit of demand that is being assessed (e.g. demand for an individual airline or demand for total air travel)? Examining the traffic impact of a price increase on a given route requires a different elasticity than when examining the impact of an across-the-board price increase on all routes in a country or region.
There often appears to be some confusion in policy discussions about the sensitivity of airline passengers to the price of travel. This has increased as the industry has changed, with the Internet increasing price transparency, deregulated markets and no frill carriers increasing competition and corporate travel buyers becoming more price sensitive. In particular, there is an apparent paradox whereby:
Passengers are becoming increasingly sensitive • to price, led by the boom in low cost travel, the transparency brought by the Internet and the intense competition on deregulated markets.
But, passengers are also becoming less sensitive to • price, as increasingly lower air travel prices, in real terms mean that the air travel price itself becomes a smaller and less important part of the total cost of a typical journey.