Income Elasticities
The main focus of the research was on price elasticities. Nevertheless, the analysis also considered the sensitivity of demand to changes in incomes. The econometric research and review of previous estimates found that air transport income elasticities were consistently positive and greater than one. This suggests that as households and individuals get more prosperous, they are likely to devote an increasing share of their incomes to discretionary spending such as air travel.
The statistical evidence suggests:
•Developed country travel markets have base income elasticities for short-haul routes of around 1.5. At the national level, this declines to an estimated income elasticity of 1.3.
•US travel markets have slightly higher income elasticities with air travel perhaps less budget-oriented than in other developed economies. Using the DB1A data suggests short-haul route income elasticities of 1.8 at the route level and 1.6 at the national level.
•There is some evidence that income elasticities decline as countries become richer and markets mature. Developing countries typically have a greater responsiveness, with an estimated short-haul income elasticity of around 2.0 at the route level and 1.8 at the national level.
•There is also evidence that long-haul journeys are seen by passengers as different, more desirable, to the more commoditised short-haul markets, and so income elasticities are higher the longer the distance. This suggests that middle to lower income individuals are more likely to travel on short to medium haul routes, with higher incomes leading to a higher frequency of long-haul travel.
The income elasticity results are based on information from the review of previous studies and results from the new econometric research. Table 4 outlines the estimated income elasticities for different markets at the route and at the national level.