Since airline deregulation, the focus has shifted from other marketing factors, such as seat and cargo capacity availability, to pricing. To understand consumer behavior better, economists have focused on the role that price plays. In many fields, determining prices is still a complicated subject. Due to the recent shift from a strongly regulated to an unregulated industry and environment, air travel presents additional challenges (Millwood, 2018). The price elasticity of demand is a metric used to analyze how price changes affect the booking for a specific flight.
The term “demand” refers to the quantity and cost of a good or service that buyers are prepared to buy over a given period. As the price of anything goes down, the quantity demanded increases and vice versa. Concisely, the demand for a product drops as the price goes up. The term “law of demand” was used by economists to describe the inverse relationship between supply and demand (Millwood, 2018). It depicts the projected number of travelers willing to pay a certain price for a ticket. If the right demand elasticity is not employed, judgments about air transport policy could be unproductive or even counter-productive. When the price elasticity of demand is underestimated, for instance, a revenue-raising program that increases the price of flying on an itinerary (such as higher ticket prices), bookings will decrease more than projected. When airfare prices go up at the route level, consumers cut back on their spending faster than the price change would indicate.
In this context, “non-price drivers of air travel demand” refers to external variables other than airfare that may affect the demand for flights and cause a change in the shape of the demand curve. Such considerations are of paramount economic importance because they have the potential to affect air travel demand irrespective of the price of airfare (de Oliveira & Caetano, 2019). The demand for air travel is mostly determined by factors other than price, including passenger preferences, market size, wealth and disposable income, rivals’ fares and associated travel costs, and expectations for airfares in the future.
When prices shift, consumers’ preferences for how many services/products they want to buy vary. In economic terms, that represents more progress across the same demand curve. The demand for tickets at all feasible prices and any given period rises, for instance, if more people are ready and able to make purchases. In contrast, a change in factors outside of price, such as an alteration in passenger preferences, might cause the demand curve to move in a different direction. The demand curve is significantly determined by these non-price factors (de Oliveira & Caetano, 2019). In this case, the demand for tickets at each price point over a given period would shift to the right if passengers’ preferences shifted in favor of the airline, perhaps due to advertising. In the event of undesirable changes in passenger interests, demand will fall, and the curve will move to the left. Fewer tickets are sold than expected at the airline’s listed pricing. Many considerations come into play when choosing an airline, such as the reputation of the company, the frequency of flights, and the level of trust the customer has in the airline’s safety record.
Economists have looked at prices to gain insight into consumer behavior. The recent shift from a highly regulated to an unregulated industry and environment has added new complications to air travel. Calculating the flight’s price elasticity of demand is one way to examine how airfare shifts impact ticket sales. The term “non-price drivers of air travel demand” describes factors other than airfare that may affect the demand for flights and thus alter the shape of the demand curve. The demand curve could tilt in a different direction if circumstances besides price were to change, such as if passenger preferences were to shift.
References
de Oliveira, D. S., & Caetano, M. (2019). Market strategy development and innovation to strengthen consumer-based equity: The case of Brazilian airlines. Journal of Air Transport Management, 75, 103-110.
Millwood, S. (2018). Big Airlines with big data: The European competition law issues associated with price-setting in the airline industry using big data analytics and machine-learning and the case for ‘competition-b. Air and Space Law, 43(3), 287-301.