If passengers are relatively insensitive to air travel prices at a national aggregate market level, and even less so at a supra-national level, this strongly suggests that falling real air travel prices have not been the main driver of air travel growth11. Falling real air travel prices are important in passengers switching from one airline to another, and from one destination to another, but are much less important in driving aggregate national-level air travel or tourism growth.
The growth of incomes, often proxied by GDP, has been found to be the fundamental driver of the demand for air travel. During the past twenty years global passenger traffic has expanded at an average annual growth rate of 5.1%, while global GDP grew by an average annual rate of 3.7% over the same period. That implies an average income elasticity of 1.4, similar to the average estimated above for developed economies. The implication is that economic growth can explain most of the expansion in air travel seen in the past twenty years. The fall in real air travel prices has played a part, but mostly in diverting travel between airlines and markets rather than significantly boosting overall travel volumes. In addition, economic growth is now increasingly being driven by developing economies, where income elasticities are higher. Therefore, the underlying drivers for overall air travel growth are likely to remain strong for the foreseeable future.
If passengers are relatively insensitive to air travel prices at a national aggregate market level, and even less so at a supra-national level, this strongly suggests that falling real air travel prices have not been the main driver of air travel growth11. Falling real air travel prices are important in passengers switching from one airline to another, and from one destination to another, but are much less important in driving aggregate national-level air travel or tourism growth.The growth of incomes, often proxied by GDP, has been found to be the fundamental driver of the demand for air travel. During the past twenty years global passenger traffic has expanded at an average annual growth rate of 5.1%, while global GDP grew by an average annual rate of 3.7% over the same period. That implies an average income elasticity of 1.4, similar to the average estimated above for developed economies. The implication is that economic growth can explain most of the expansion in air travel seen in the past twenty years. The fall in real air travel prices has played a part, but mostly in diverting travel between airlines and markets rather than significantly boosting overall travel volumes. In addition, economic growth is now increasingly being driven by developing economies, where income elasticities are higher. Therefore, the underlying drivers for overall air travel growth are likely to remain strong for the foreseeable future.
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