Numerous variables influence transportation costs, and the concept of demand elasticity is a crucial component of this complex equation. Demand elasticity is a critical factor in determining the costs associated with air travel when analyzing the transportation costs of a single traveler. According to Morlotti et al. (2023), it describes how responsive an item or service’s amount of demand is to changes in its price.
It denotes how sensitive a person’s choice to fly is to changes in airline ticket costs in the context of air travel. If a traveler’s preference for air travel is elastic, even a slight increase in ticket costs might result in a substantial drop in demand. On the other hand, if demand is inelastic, a price rise may not significantly impact the person’s decision to travel.
When developing a model to reflect this person’s traveling cost, several demand elasticity-related variables would need to be considered. According to Profillidis and Botzoris (2019), it includes the financial status of the passenger, the accessibility of other forms of transportation, the nature of the trip (whether it is for business or leisure), and the degree of urgency. The chosen route’s historical price elasticity data can be incorporated into the model, revealing insights into how ticket cost changes have previously affected travelers’ choices. It can include information on the traveler’s salary, enabling a clearer understanding of the relationship between price fluctuations and their ability to pay for the trip.
Additionally, Profillidis and Botzoris (2019) show that the model may consider external factors, including airline industry trends, macroeconomic conditions, and seasonal fluctuations in travel demand. By examining these factors, the model could forecast how changes in ticket pricing may influence a traveler’s choice. Thus, it can help determine the trip’s overall cost while considering the likelihood of changes in the ticket price and quantity required.
References
Morlotti, C., Mantin, B., Malighetti, P., & Redondi, R. (2023). Price volatility of revenue managed goods: Implications for demand and price elasticity. European Journal of Operational Research.
Profillidis, V. A., & Botzoris, G. N. (2019). Modeling of transport demand: Analyzing, calculating, and forecasting transport demand. Elsevier.