This report shows how the sensitivity of air travel demand to prices and incomes can vary according to different situations. Therefore, the appropriate elasticity to use will depend upon the level of aggregation and the location of an air transport policy proposal. For example:
At the Route level.• To examine the impact of an increase in airport landing fees on a particular short-haul market in South America, the price elasticity would be derived as:
Base elasticity -1.4 (route)
multiplied by 1.25 (intra South America)
multiplied by 1.1 (short-haul multiplier)
which equals -1.93
A 10% rise in the airport landing fee would reduce passenger numbers on short-haul markets serving that airport by over 19%.
At the National level.• To look at the impact of the doubling of UK passenger tax on trans Atlantic traffic, the price elasticity would be derived as follows:
Base elasticity -0.8 (national)
multiplied by 1.2 (trans Atlantic geographical multiplier) which equals -0.96
For outbound traffic from the UK this implies the resulting 3.7% rise in the cost of long-haul travel will cut demand by 3.6%. For inbound traffic from N America the UK only represents a 20% market share, so while the UK will lose inbound tourists many will just be diverted to other destinations.
At the Supra-national level. • To look at the demand impacts of higher travel costs caused by extending the EU Emissions Trading Scheme just to intra-EU travel i.e. short-haul markets, the relevant price elasticity would be derived as follows:
Base elasticity -0.6 (supra-national) multiplied by 1.4 (intra-Europe geographic multiplier) multiplied by 1.1 (short-haul multiplier) which equals -0.92
So a 10% rise in intra-EU travel costs would lead to a relative inelastic 9.2% reduction in air travel.