National Level. Estimates of national elasticities using all
three datasets found that, without the route substitution
term, elasticities fell to around -0.8. This inelastic result
was found over a range of model specifications which
excluded route dummies. The national level elasticity
applies to a situation such as the doubling of a national
passenger departure tax, affecting all departing routes
equally but leaving the cost of travel from elsewhere
unchanged. Its value reflects a combination of the route
own price elasticities with cross price elasticities, when
all national routes have prices which vary in the same
way. The inelastic result is consistent with observations
that part of the price elasticity observed from low cost
carriers (LCCs) involves substitution from other routes.
When this is controlled for, LCCs have a lower level of
market stimulation, consistent with less elastic national
elasticities.
Supra-National Level. At the supra-national level
(e.g. the European Union) estimates show an even less
elastic air travel price elasticity of -0.6. This is because
as the number of routes covered expands the number of
choices for passengers to avoid any travel price increase
diminishes. There is less opportunity for traffic to be
diverted.