At the present time, the airline industry faces many cost pressures. The industry has made remarkable achievements in improving its efficiency. But cost pressures continue, from record high fuel prices to unjustified increases in charges from monopolistic airports, to further taxes imposed by governments. Higher costs inevitably lead to higher prices for airline passengers.
Therefore, it is crucial that reliable and appropriate estimates are available to assess how higher prices impact on the level of demand for air travel. This impact will, of course, differ according to the level and location at which prices are changed.
This report provides groundbreaking new research into the sensitivity of air travel demand to changes in air travel prices and incomes. It provides clear guidelines for the appropriate use of demand elasticities and robust and reliable estimates of their value.
Air transport provides economic benefits not just for its passengers and cargo shippers, but also for the wider economy by connecting businesses and individuals to global markets. Modern, just-in-time, global supply chains and multinational businesses are made possible by global airline networks. Yet governments often fail to recognise this and continue to implement air transport policies that are not in the best interests of the aviation industry and the wider economy. Monopolistic airports that raise charges but do not improve the services they offer will see passengers quickly shift elsewhere. Governments that impose new taxes on the industry are taking advantage of less sensitive movements in demand at the national level to raise revenues at the industry’s expense.
The results in this report also have important implications for environmental policies. The aviation industry is committed to a carbon-neutral – and eventually a carbon- free – future. IATA’s 4-Pillar Strategy is already taking action on emissions reduction measures focusing on technology, infrastructure, operations and those brought about by well designed economic instruments.
By contrast, rudimentary demand-side policies, such as “green taxes”, that try to reduce emissions by raising the price of travel for passengers are likely to fail. With passengers having far fewer possibilities to be able to reduce their travel on routes subject to such a tax at a national or supra-national level, such measures will provide easy revenues for governments, but will be ineffective in terms of their main objective.
Understanding the impact on demand is the key to effective policy decisions concerning aviation – for the benefit of the industry, its users, the environment and the wider economy.
Giovanni Bisignani Director General & CEO, IATA