The elasticity of air travel demand varies according to the
coverage and location of the market in which prices are
changed and the importance of the air travel price within
the overall cost of travel. The appropriate elasticity to use
will depend on the type of question being asked. What is
the price that is being changed (e.g. an individual airline
ticket price or prices within the market as a whole)? What
is the unit of demand that is being assessed (e.g. demand
for an individual airline or demand for total air travel)?
Examining the traffic impact of a price increase on a given
route requires a different elasticity than when examining
the impact of an across-the-board price increase on all
routes in a country or region.
There often appears to be some confusion in policy
discussions about the sensitivity of airline passengers to
the price of travel. This has increased as the industry has
changed, with the Internet increasing price transparency,
deregulated markets and no frill carriers increasing
competition and corporate travel buyers becoming more
price sensitive. In particular, there is an apparent paradox
whereby:
• Passengers are becoming increasingly sensitive
to price, led by the boom in low cost travel, the
transparency brought by the Internet and the intense
competition on deregulated markets.
• But, passengers are also becoming less sensitive to
price, as increasingly lower air travel prices, in real
terms mean that the air travel price itself becomes a
smaller and less important part of the total cost of a
typical journey