Substitution of components within an overall
package. In situations where one component of
a package can be substituted for an adequate
alternative then the price elasticity for that component
can be much higher than suggested by the price
elasticity of the overall package. For example, changes
in an air travel price could result in the passenger
changing to a different airline, route or another
transport mode while still undertaking a similar journey.
Therefore, the elasticity for the overall journey cannot
be inferred from the air travel price elasticity and must
instead be estimated on a separate basis.
• A “two-stage” decision-making process. Travellers
are induced to select a destination based on the level
of air travel price offered, and having booked the
flight then consider the other costs associated with
the travel (e.g. booking a low-fare air ticket and then
making a separate decision on hotels, etc). In this
case, the overall decision to travel is more sensitive to
changes in the initial air travel price.
Therefore, passengers can be relatively more sensitive
to the cost of the air travel price, even though it is only
one component within the overall cost of travel. Air travel
itself is a derived demand, based on the demand for
passengers to travel to another location for business or
leisure purposes. The other components of the journey
cost are derived from the decision to travel and are
essentially complementary goods to air travel (i.e. they
have a cross-price elasticity to air travel prices of less
than zero).