There is a substantial amount of evidence on air travel
demand elasticities available from previous studies.
However, these studies have also produced a wide variety
of results, reflecting large differences in the nature and
scope of the elasticities that have been looked at. As
part of its research, InterVISTAS Consulting reviewed the
available literature on demand elasticities. This chapter
summarises the key themes that can be identified across
the different studies.
Overview of Previous Studies
The review of previous studies helps to provide a greater
understanding of air travel price elasticities and provides
important insights for the new econometric analysis by
InterVISTAS Consulting (discussed in the next chapter).
The review looked at several academic and government
commissioned studies . The different studies7 produced a
wide range of air travel price elasticity estimates, varying
in accordance with the markets analysed, the time period
assessed, the methodology used and the available data.
Even within some particular studies, a range of elasticities
are estimated for different markets.
For example, a commonly referenced study by Gillen,
Morrison and Stewart8 found demand elasticities ranging
from -0.1 to -1.7, depending on the relevant market. It
identified various elasticity estimates for several distinct
markets for air travel, such as:
Long-Haul Price Elasticities
• International Business: -0.3
• Domestic Business: -1.1
• International Leisure: -1.0
• Domestic Leisure: -1.1
Short-Haul Price Elasticities
• Business: -0.7
• Leisure: -1.5
Key Themes
A review of the existing literature of previous studies on air
travel price elasticities shows a number of consistent themes.
All of the studies reviewed, spanning a period of over 25
years, found that there was a significant demand response
to changes in air travel prices. The consistency of this result
strongly indicates that any policy action that results in higher
prices (e.g. passenger taxes, increased landing fees) will
result in a decline in demand. However, critically, the extent
of that decline will depend on a number of factors