For an airline on a given route, increasing price is likely to result in a more than proportionate decrease in air travel. Lower travel prices will greatly stimulate traffic and raise revenues. Airline specific travel price charges are price elastic.
• If all airlines on a given route increase travel prices
by the same amount (e.g. due to the imposition of passenger based airport fees that are passed on to the consumer), then the decrease in traffic will be less but still proportionately more than the change in price. Route specific travel prices are price elastic.
• If all airlines on a wide set of routes increase travel prices by roughly similar amounts (e.g. due to the imposition of new market-wide taxes or to the working through of higher fuel or security costs) then the decrease in traffic may be less or much less than proportional to the increase in fares. National or Supra-National increases in airline travel prices, that take place across a broad range of markets, are price inelastic.
Thus, the particular elasticity value to be used for analysing price effects in airline markets depends on the question being asked. The narrower the applicability of a price change, the more elastic (i.e. larger) the change in demand. The more general the applicability of a price change (perhaps due to higher costs or taxes) the less elastic (i.e. smaller) the change in demand.