Polic y Implications mplications
The correct elasticity value to use in analysing an air transport policy decision depends on the type of question being asked. The impact on demand of higher travel costs on a given route due to a rise in airport landing charges requires a different (higher) elasticity than when examining the traffic impact of a wider travel cost increase due to a passenger tax on all routes in a country.
Air transport policy decisions run the risk of being ineffective, or even counter-productive, if the correct demand elasticity is not used. For example:
A revenue-raising policy to raise the price of travel • on a route (e.g. higher airport charges) will reduce passenger numbers more than expected if the price elasticity of demand is underestimated. A price elastic response to air travel price increases at the route level means that demand falls at a proportionately higher rate than the increase in price.
A national passenger tax may damage inbound • tourism more than expected if policy-makers do not take into account the greater price elasticity of overseas residents visiting the country, who have a choice of destinations, compared to outbound domestic residents who can either pay the tax or
not travel.
An environmental policy to raise the price of travel • (e.g. a national aviation tax) on a national or supra-national basis will be ineffective if the price elasticity of outbound travel is low, as found. A price inelastic response at the national or supra-national level means that the impact in terms of reducing demand will be proportionately less than the increase in price. The greater price sensitivity of inbound overseas residents will result in a diversion to other destinations, a “leakage of carbon”, and thus a reduction in environmental effectiveness.
The focus of existing policy to reduce CO2 emissions from air travel has been on trying to manage air travel demand by raising the cost of travel for passengers. The results contained in this report show that such policies are likely to fail. Decoupling emissions from travel growth needs to focus not on demand management but on mechanisms to bring about emissions reduction measures from technology, infrastructure and operations.
IATA’s 4-Pillar Climate Strategy3 , which was endorsed by the Assembly of the International Civil Aviation Organisation in 2007, focuses action on emission reduction measures from technology, infrastructure, operations and those brought about by well designed economic instruments.
Effectively decoupling emissions from air travel growth will require policy-makers and the industry to look beyond simple economic instruments:
Technological progress will require collaboration • across the value chain and across countries.
Governments will need to play a role in funding • fundamental research.
Political will is perhaps one of the most important • mechanisms for delivering emissions reductions from infrastructure improvements.
The lack of implementation of a Single European • Sky is one glaring omission in policy action to reduce emissions from air travel.
IATA is actively promoting collaborative efforts on technology and is lobbying hard for governments to improve infrastructure. For operations, there is a major initiative to spread best practices. More needs to be done about the challenges of climate change, but the airline industry is already stepping up efforts with a bold vision of zero emissions and an important target of carbon-neutral growth. The key lesson for both policy-makers and the industry is to look beyond simple economic instruments for mechanisms to bring about an effective reduction in emissions from air travel.