Airline Economics

AirlineEconomics
Chapter3
SYST461/660 OR750
Spring2010
Sources:
TheGlobalAirlineIndustry
PeterBelobaba,Amedeo Odoni,CynthiaBarnhart,MIT,LibraryofFlightSeries
PublishedbyJohnWiley&Sons, 2009,520pages,Hardback
http://ocw.mit.edu/OcwWeb/AeronauticsandAstronautics/1675JSpring2006/CourseHome/index.htm
CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH
Outline
BasicTerminologyandMeasuresforAirlineEconomics
BasicAirlineProfitEquationandAirlineProfitMaximizing
Strategies
TypicalPassengerTripProcess
AirlineMarkets
DichotomyofSupplyandDemand
ODDemand
FactorsaffectingODDemand
TotalTripTimeModel
DemandModels
ODMarketDemandFunctions
AirlineCompetitionandMarketShare
MarketShare/FrequencyShareModel
Price/TimeElasticityofDemand
AirTravelDemandSegments
2
FourTypesofTraffic
AirlineTraffic Amountofairlineoutputthatis
actuallyconsumedorsold
4TypesofTraffic
PassengerAircraft
CargoFreighter Aircraft
Passengers
PassengerBags
AirFreight
Mail
FocusofthislessonisonPassengerTraffic
3
AirlineSystemWideMeasures
Traffic EnplanedPassengers
RPM=RevenuePassengerMile
Onepayingpassengertransported1mile
Yield=RevenueperRPM
Averagefarepaidbypassengers,permileflown
PDEW=Passengertripsperdayeachway
AcommonwaytomeasureODmarketdemand
AirlineDemand=Traffic+RejectedDemand
RejectedDemand orSpill =Passengersunabletofindseatstofly
AirlineSupply
ASM=AvailableSeatMile
Oneaircraftseatflownonemile
UnitCost=OperatingExpenseperASM(CASM)
Averageoperatingcostperunitofoutput
AirlinePerformance
AverageLoadFactor(LF)=RPM/ASM
AverageLegLoadFactor(ALLF)= LF/#ofFlights
AverageNetworkorSystemLoadFactor(ALF)=RPM/ASM
UnitRevenue=Revenue/ASM(RASM)
TotalPassengerTripTime
4
USDomesticTraffic (RevenuePassengerMiles)Source:BTS
60
RPMisSeasonal
2005
2006
55
2007
2008
RPM(Billions)
2009
50
45
40
RPM=RevenuePassengerMile
Onepayingpassengertransported1mile
35
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
5
USDomesticSupply(AvailableSeatMiles)Source:BTS
70
2005
ASMisSeasonal
2006
2007
65
2008
ASM(Billions)
2009
60
55
50
ASM=AvailableSeatMile
Oneaircraftseatflownonemile
45
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
6
USDomesticAverageNetworkLoadFactors Source:BTS
90%
ALFisSeasonal
2005
88%
86%
84%
2006
PeaksinRPM,ASM,
andALFinsummermonths
stressthesystem
2007
2008
2009
ALF(%)
82%
80%
78%
76%
74%
AverageNetworkorSystemLoad
Factor(ALF)=RPM/ASM
72%
70%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
7
AverageNetworkLoadFactors(ALF)Source:BTS
80%
75%
AverageLoadFactors
70%
NAS
65%
NYMP
SFMP
60%
55%
AverageNetworkorSystemLoad
Factor(ALF)=RPM/ASM
50%
45%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
8
YieldversusDistance
Yield=RevenueperRPM
Averagefarepaidbypassengers,
permileflown
9
AdditionalAirlineMeasures
AverageStageLength
Averagenonstopflightdistance
AircraftMilesFlown/AircraftDepartures
Longeraveragestagelengthsassociatedwithloweryieldsand
lowerunitcosts(intheory)
AveragePassengerTripLength
Averagedistanceflownfromorigintodestination
RevenuePassengerMiles(RPM)/Passengers
Typicallygreaterthanaveragestagelength,sincesome
proportionofpassengerswilltakemorethanoneflight
(connections)
AverageNumberofSeatsperFlightDeparture
AvailableSeatMiles(ASM)/AircraftMilesFlown
Higheraverageseatsperflightassociatedwithlowerunitcosts
(intheory)
10
BasicAirlineProfitEquation
OperatingProfit=
RPMxYield ASMxUnitCost
(Revenue) (OperatingExpenses)
Useofanyoftheindividualtermsasindicatorsof
airlinesuccesscanbemisleading
Q
HighYieldisnotdesirableifALFistoolow
LowunitcostisoflittlevalueifRevenuesareweak
HighALFcanbetheresultofsellingalargeproportionof
seatsatlowfares
Price
11
AirlineProfitMaximizingStrategies
IntendedBenefit
StrategyPitfalls
CuttingFares/Yields
StimulateDemand
Thepricecutmustgenerateadisproportional
increaseintotaldemand,elasticdemand
IncreasingFares/Yields
IncreaseRevenue
Thepriceincreasecanberevenuepositiveif
demandisinelastic
IncreaseFlights(ASM)
StimulateDemand
IncreasesOperationalCosts
DecreaseFlights(ASM)
ReduceOperational
Costs
LowerFrequenciesmadeleadtomarketshare
lossesandlostdemand
ImprovePassenger
ServiceQuality
StimulateDemand
IncreasesOperationalCosts
ReducePassenger
ServiceQuality
ReduceOperational
Costs
Excessivecutscanreducemarketshareand
demand
12
USAirlineHistoricalReportedProfits/Losses(sourceBTS)
$4,000
Regional
LowCost
$3,000
Network
AIrlineProfit/Losses ($M)
21CarrierTotal
$2,000
$1,000
$
1QTR04
1QTR05
1QTR06
1QTR07
1QTR08
1QTR09
$(1,000)
$(2,000)
$(3,000)
13
Figure3.1
TypicalAirPassengerTrip
OutboundAirTrip
GroundEgress
GroundAccess
Origin
Enplanement
Processing
Deplanement
Processing
Deplanement
Processing
Enplanement
Processing
GroundEgress
Destination
GroundAccess
InboundAirTrip
14
Enplanement/Deplanement
Enplanement
1.
2.
3.
4.
5.
PurchasingTickets
BoardingPass
CheckingBaggage
UndergoingSecurityInspections
BoardingAirplane
Deplanement
1.
2.
3.
4.
ExitingAirplane
ExitingTerminal
BaggageRetrieval
ImmigrationandCustomsInspections
15
AirlineSupplyTerminology
FlightLeg(orflightsector orflightsegment)
NonstopoperationofanaircraftbetweenAandB,with
associateddepartureandarrivaltimes
Flight
Oneormoreflightlegsoperatedconsecutivelybyasingle
aircraft(usually)andlabeledwithasingleflightnumber
(usually)
Route
Consecutivelinksinanetworkservedbysingleflightnumbers
PassengerPathsorItineraries
CombinationofflightlegschosenbypassengersinaODmarket
tocompleteajourney
16
AirlineMarkets
Thepurposeofeachairtripistomovefrom
thetrue origintothetrue destinationof
thepassenger.
Thereistypicallyanoutboundandinbound
portionofpassengerairtrips.
IntheAirTransportationSystemTypicallyArrival
=Departures
Direct/ConnectingFlights
17
DistinctandSeparateOrigin DestinationMarkets
Figure3.2
CatchmentArea
AirportA
TripOrigin
CatchmentArea
AirportB
AirServicesAtoB
AirServicesBtoA
AirportB
AirportA
Trip
Destination
AirServices
AtoC
AirServices
CtoA
AirportC
CatchmentArea
AirportC
Trip
Destination
CatchmentArea anareawhichcontainsalltheoriginpointsoftravelers
Anairportscatchmentareacanextendforhundredsofkilometersandcanvarywiththe
destinationandtrippurposeofthetraveler
ThemarketforairservicesfromAtoCisdistinctandseparatefromthemarketfromCtoA
18
AirTravelMarkets
OppositeMarkets passengerswhooriginatetheirtripsfromthe
destinationairportregion.
ParallelMarkets theflightoperationsservingeachparallel
marketcantosomeextentsubstituteforeachother
CityPairMarkets Demandforairtravelbetweentwocities
RegionPairMarkets Demandforairtravelbetweentworegions
ormetropolitanareas
AirportPairMarketsParallel CityPairandRegionPairMarkets
Demandcanbedisaggregatedtodifferentairportsservingthe
citiesorregions
Withtheexistenceofoverlappingairportregions,parallelmarkets,
andthesharingofscheduledairlinesupplyonconnectingflights,
evendistinct andseparate origindestinationmarketsare
interrelated
19
ConnectingversusDirectTraffic
1st Leg
2nd Leg
Ground
Access
Enplanement
Processing
Enplanement
Processing
Ground
Access
Deplanement
Processing
Deplanement
Processing
Ground
Egress
Ground
Egress
20
AirlineMarketsExample
Market
Itinerary
Segment
/Leg
Airline
Seats
PAX
Connecti
ngPAX
OD
Traffic
%
Connecting
Load
Factor
Daily
Freq
IADBOS
IADBOS
IADBOS
Airline1
100
50
N/A
50
N/A
.5
IADBOS
IADPHLBOS
IADPHL
Airline1
150
100
75
25
75%
.67
IADPHLBOS
PHLBOS
Airline1
100
75
N/A
75
N/A
.75
IADJFKBOS
IADJFK
Airline2
200
150
50
100
50%
.75
IADJFKBOS
JFKBOS
Airline2
100
50
N/A
50
N/A
.5
IADBOS
IADBOS
IADBOS
Airline2
100
75
N/A
75
N/A
.75
IADPIT
IADBOSPIT
IADBOS
Airline2
200
100
25
75
50%
.5
IADBOSPIT
BOSPIT
Airline2
150
75
N/A
75
N/A
.5
IADBOS
Forthisexamplenoadditionalpassengersareboardingattheconnection
FrequencyShareforIADBOS
Airline1=2/6=33%,Airline2=4/6=67%
MarketShareforIADBOS
Airline1=((2x50)+(4x75))/((2x50)+(4x75)+(2x50)+(3x75)+(1x75))=50%
Market ODTrafficforIADBOS=
((2x50)+(4x75)+(2x50)+(3x75)+(1x25))=750
Segment orLeg ODSupplyforIADBOS=
((2x100)+(3x100)+(1x200))=700
21
AirlineMarketsExample
Market
Itinerary
Segment
/Leg
Airline
Seats
PAX
Connecti
ngPAX
OD
Traffic
%
Connecting
Load
Factor
Daily
Freq
IADBOS
IADBOS
IADBOS
Airline1
100
50
N/A
50
N/A
.5
IADBOS
IADPHLBOS
IADPHL
Airline1
150
100
75
25
75%
.67
IADPHLBOS
PHLBOS
Airline1
100
75
N/A
75
N/A
.75
IADJFKBOS
IADJFK
Airline2
200
150
50
100
50%
.75
IADJFKBOS
JFKBOS
Airline2
100
50
N/A
50
N/A
.5
IADBOS
IADBOS
IADBOS
Airline2
100
75
N/A
75
N/A
.75
IADPIT
IADBOSPIT
IADBOS
Airline2
200
100
25
75
50%
.5
IADBOSPIT
BOSPIT
Airline2
150
75
N/A
75
N/A
.5
IADBOS
Forthisexamplenoadditionalpassengersareboardingattheconnection
RPM=(2x50x1)+(4x100x1)+(4x75x1)+(2x150x1)+(2x50x1)+(3x75x1)+
(1x100x1)+(1x75x1)=1600
ASM= (2x100x1)+(4x150x1)+(4x100x1)+(2x200x1)+(2x100x1)+
(3x100x1)+(1x200x1)+(1x150x1)=2450
ALLFforIADBOS=(2x.5)+(3x.75)+(1x.5)/6=.625
ALFforthisnetwork forthisexampleallflightlegsare1unitofdistance
=RPM/ASM=1600/2450=.653
22
IllustrationofDirectversusConnectingPassengers
TopODMarketsbyVolume
23
OriginDestinationMarketDemand
Airtraveldemandisdefinedforanorigindestination
market,notaflightleginanairlinenetwork
NumberofpersonswishingtotravelfromoriginAto
destinationBduringagiventimeperiod
IncludesbothpassengersstartingtheirtripatAandthose
completingtheirtravelbyreturninghome(oppositemarkets)
Typically,volumeoftravelmeasuredinonewaypassengertrips
betweenAandB,perhapssummedoverbothdirections
Airlinenetworkscreatecomplicationsforanalysisof
marketdemandandsupply
NotallABpassengerswillflyonnonstopflightsfromAtoB,as
somewillchooseonestoporconnectingpaths
AnysinglenonstopflightlegABcanalsoservemanyotherOD
markets,aspartofconnectingormultiplestoppaths
24
DichotomyofDemandandSupply
Inherentinabilitytodirectlycomparedemandandsupply
atthemarket level
DemandisgeneratedbyODmarket,whilesupplyis
providedasasetofflightlegdeparturesoveranetworkof
operations
OneflightlegprovidesjointsupplyofseatstomanyOD
markets
Numberofseatsontheflightisnotthesupply toasinglemarket
Notpossible(orrealistic)todeterminesupplyofseatstoeach OD
SingleODmarketservedbymanycompetingairlinepaths
TabulationoftotalODmarkettrafficrequiresdetailedticketcoupon
analysis
25
ImplicationsforAnalysis
Dichotomyofairlinedemandandsupplycomplicatesmanyfacets
ofairlineeconomicanalysis
Difficult,intheory,toanswerseeminglysimple economic
questions,forexample:
Becausewecannotquantifysupply toanindividualODmarket,we
cannotdetermineifthemarketisinequilibrium
CannotdetermineiftheairlinesservicetothatODmarketis
profitable,orwhetherfaresaretoohigh ortoolow
Seriousdifficultiesinprovingpredatorypricingagainstlowfarenew
entrants,givenjointsupplyofseatstomultipleODmarketsand
inabilitytoisolatecostsofservingeachODmarket
Inpractice,assumptionsaboutcostandrevenueallocationare
required:
Estimatesofflightand/orrouteprofitabilityareopentoquestion
26
DemandModels
Demandmodelsaremathematicalrepresentationsofthe
relationshipbetweendemandandexplanatoryvariables:
Basedonourassumptionsofwhataffectsairtraveldemand
Canbelinear(additive)modelsornonlinear(multiplicative)
Modelspecificationreflectsexpectationsofdemandbehavior
(e.g.,whenpricesrise,demandshoulddecrease)
Aproperlyestimateddemandmodelallowsairlinesto
moreaccuratelyforecastdemandinanODmarket:
Asafunctionofchangesinaveragefares
Givenrecentorplannedchangestofrequencyofservice
Toaccountforchangesinmarketoreconomicconditions
27
AirlineDemand
DemandforcarrierflightfofcarrieriinODmarketjisafunction
of:
Characteristicsofflightf
Departuretime,traveltime,expecteddelay,aircrafttype,inflightservice,etc.
Price
Characteristicsofcarrieri
Flightscheduleinmarketj(frequency,timetable),airportamenitiesofcarrier,
frequentflyerplanattractiveness,etc.
Marketcharacteristics
Distance,businesstravelbetweentwocities,tourismappeal
Characteristics(includingprice)ofallrivalproducts:
Otherflightsoncarrieri
Flightsonothercarriersinmarketj(carrierandflightcharacteristics)
Competingmarkets products(otherairportsservingcitypairinj,other
transportmodes,etc.)
28
TotalTripTimefromPointAtoB
Nexttopriceofairtravel,mostimportantfactoraffectingdemand
forairlineservices:
Accessandegresstimesto/fromairportsatoriginanddestination
Predepartureandpostarrivalprocessingtimesateachairport
Actualflighttimesplusconnectingtimesbetweenflights
Scheduledisplacementorwaittimesduetoinadequatefrequency
Totaltriptimecapturesimpactsofflightfrequency,pathquality
relativetoothercarriers,othermodes.
Reductionintotaltriptimeshouldleadtoincreaseintotalairtravel
demandinODmarket
Increasedfrequencyandnonstopflightsreducetotaltriptime
Increasesintotaltriptimewillleadtoreduceddemandforair travel,
eithertoalternativemodesorthenotravel option
29
TotalTripTimeandFrequency
T=t(fixed)+t(flight)+t(schedule displacement)
Fixedtimeelementsincludeaccessandegress,airportprocessing
Flighttimeincludesaircraftblock timesplusconnectingtimes
Scheduledisplacement=(Khours/frequency),meaningitdecreases
withincreasesinfrequencyofdepartures
Thismodelisusefulinexplainingwhy:
Nonstopflightsarepreferredtoconnections(lowerflighttimes)
Morefrequentserviceincreasestraveldemand(lowerschedule
displacementtimes)
Frequencyismoreimportantinshorthaulmarkets(schedule
displacementisamuchlargerproportionoftotalT)
Manyconnectingdeparturesthroughahubmightbebetterthan1
nonstopperday(lowertotalTfortheaveragepassenger)
30
TotalTripTimeExample
WithUniformPassengerDemand
FlighttimeshighlightedinYellow
waittimes
1flight
2flights
3flights
4flights
0600 0700 0800 0900 1000

10 9
8
7
6
4
3
2
1
0
3
2
1
0
1
2
1
0
1
2
1100
5
1
2
1
1200
4
2
2
0
1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 Average
3
2
1
0
1
2
3
4
5
6 4.47
3
4
3
2
1
0
1
2
3
4 2.12
1
0
1
2
2
1
0
1
2
3 1.41
1
2
1
0
1
2
1
0
1
2 1.06
IncreasedFrequencyreducesPassengerTotalTripTimeandIncreasesDemand
31
SimpleMarketDemandFunction
MultiplicativemodelofdemandfortravelODper
period:
D=MxPaxTb
where:M=marketsizingparameter(constant)thatrepresents
underlyingpopulationandinteractionbetweencities
P=averagepriceofairtravel
T=totaltriptime,reflectingchangesinfrequency
a,b =priceandtimeelasticities ofdemand
WecanestimatevaluesofM,a,andbfromhistorical
datasampleofD,P,andTforsamemarket:
Previousobservationsofdemandlevels(D)under
differentcombinationsofprice(P)andtotaltraveltime(T)
32
MultipleDemandSegments
Business PersonalAir
AirTravel
Travel
Demand
Demand
FirstClass
Dfb
Dfp
CoachClass
Dcb
Dcp
DiscountClass
Ddb
Ddp
33
AirlineCompetition
Airlinescompeteforpassengersandmarketsharebased
on:
Frequencyofserviceanddeparturescheduleoneachroute
served
Pricecharged,relativetootherairlines,totheextentthat
regulationallowsforpricecompetition
Qualityofserviceandproductsofferedairportandinflight
serviceamenitiesand/orrestrictionsondiscountfareproducts
Passengerschoosecombinationofflightschedules,prices
andproductqualitythatminimizesdisutilityofairtravel:
Eachpassengerwouldliketohavethebestserviceonaflight
thatdepartsatthemostconvenienttime,forthelowestprice
34
MarketShare/FrequencyShare
RuleofThumb:Withallelseequal,airlinemarket
shareswillapproximatelyequaltheirfrequencyshares.
ButthereismuchempiricalevidenceofanScurve
relationshipasshownonthefollowingslide:
Higherfrequencysharesareassociatedwith
disproportionatelyhighermarketshares
Anairlinewithmorefrequencycapturesallpassengers
wishingtoflyduringperiodswhenonlyitoffersaflight,
andsharesthedemandwishingtodepartattimeswhen
bothairlinesofferflights
Thus,thereisatendencyforcompetingairlinestomatch
flightfrequenciesinmanynonstopmarkets,toretain
marketshare
35
MSvs.FSSCurveModel
36
SCurveModelFormulation
37
AirlinePricesandODMarkets
Likeairtraveldemand,airlinefaresaredefinedforanOD
market,notforanairlineflightleg:
AirlinepricesfortravelABdependonODmarketdemand,
supplyandcompetitivecharacteristicsinthatmarket
NoeconomictheoreticalreasonforpricesinmarketABtobe
relatedtopricesAC,basedstrictlyondistancetraveled
CouldbethatpriceACisactuallylowerthanpriceAB
Thesearedifferentmarketswithdifferentdemand
characteristics,whichmightjusthappentosharejointsupplyon
aflightleg
Dichotomyofairlinedemandandsupplymakesfindingan
equilibriumbetweenpricesanddistancesmoredifficult.
38
PriceElasticityofDemand
Definition:Percentchangeintotaldemandthatoccurs
witha1%increaseinaveragepricecharged.
Priceelasticityofdemandisalwaysnegative:
A10%priceincreasewillcauseanX%demanddecrease,allelse
beingequal(e.g.,nochangetofrequencyormarketvariables)
Businessairtraveldemandisslightlyinelastic(0>Ep>1.0)
Leisuredemandforairtravelismuchmoreelastic(Ep<1.0)
Empiricalstudieshaveshowntypicalrangeofairlinemarket
priceelasticities from0.8to2.0(airtraveldemandtendstobe
elastic)
ElasticityofdemandinspecificODmarketswilldependonmix
ofbusinessandleisuretravel
39
ImplicationsforAirlinePricing
Inelastic(0.8)businessdemandforairtravelmeansless
sensitivitytopricechanges:
10%priceincreaseleadstoonly8%demandreduction
Totalairlinerevenuesincrease,despitepriceincrease
Elastic(1.6)leisuredemandforairtravelmeansgreater
sensitivitytopricechanges
10%priceincreasecausesa16%demanddecrease
Totalrevenuesdecreasegivenpriceincrease,andviceversa
Recentairlinepricingpracticesareexplainedbyprice
elasticities:
Increasefaresforinelasticbusinesstravelerstoincrease
revenues
Decreasefaresforelasticleisuretravelerstoincreaserevenues
40
TimeElasticityofDemand
Definition:PercentchangeintotalODdemandthatoccurs
witha1%increaseintotaltriptime.
Timeelasticityofdemandisalsonegative:
A10%increaseintotaltriptimewillcauseanX%demand
decrease,allelsebeingequal(e.g.,nochangeinprices)
Businessairtraveldemandismoretimeelastic(Et<1.0),as
demandcanbestimulatedbyimprovingtravelconvenience
Leisuredemandistimeinelastic(Et>1.0),aspricesensitive
vacationersarewillingtoendurelessconvenientflighttimes
Empiricalstudiesshownarrowerrangeofairlinemarkettime
elasticities from0.8to1.6,affectedbyexistingfrequency
41
ImplicationsofTimeElasticity
Businessdemandrespondsmorethanleisuredemandto
reductionsintotaltraveltime:
Increasedfrequencyofdeparturesismostimportantwayforan
airlinetoreducetotaltraveltimeintheshortrun
Reducedflighttimescanalsohaveanimpact(e.g.,usingjetvs.
propelleraircraft)
Morenonstopvs.connectingflightswillalsoreduceT
Leisuredemandnotnearlyastimesensitive:
Frequencyandpathqualitynotasimportantasprice
Butthereexistsasaturationfrequencyin eachmarket:
Pointatwhichadditionalfrequencydoesnotincreasedemand
42
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
340
360
380
400
420
440
465
495
530
585
650
680
705
740
810
1895
0
45
90
135
180
225
270
315
360
405
450
495
540
585
630
675
720
765
810
855
905
950
1010
1070
1165
1220
1285
1365
1465
1575
1740
2340
PassengerDemand
1200
1000
800
PassengerDemand
1000
800
PassengerDemand
1200
400

0
15
30
45
60
75
90
105
120
135
150
165
180
195
210
225
240
260
275
290
305
320
335
355
370
390
410
425
440
460
500
630
1140
0
35
70
105
140
175
210
245
280
315
350
385
420
455
490
525
560
595
630
665
700
735
770
805
840
875
910
955
1015
1070
1195
1385
1775
PassengerDemand
ExamplesofPriceElasticity
Source:BTS
2000
EWRORD(BTS20082QTR)
EWRPIT(BTS20082QTR)
250
1800
1600
200
1400
400
2000
1400
150
100
600
50
200
PassengerFare
PassengerFare
EWRBOS(BTS20082QTR)
1600
EWRSFO(BTS20082QTR)
1800
1600
1400
1200
1000
800
600
600
400
200
200
0
0
PassengerFare
PassengerFare
43
AirTravelDemandSegments
Passenger:
PriceSensitivity
Low
High
High
Type1
Type2
Type3
Type4
Passenger:
Time
Sensitivity
Low
44
DifferentTypesofPassengers
Type1 TimesensitiveandinsensitivetoPrice
BusinessTravelers,whomightbewillingtopaypremiumpricefor
extraamenities
Travelflexibilityandlastminuteseatavailabilityextremelyimportant
Type2 TimesensitiveandPricesensitive
SomeBusinessTravelers,mustmaketrip,butareflexibletosecure
reducedfare
Cannotbookfarenoughinadvanceforlowestfares
Type3 PricesensitiveandinsensitivetoTime
ClassicLeisureorvacationtravelers,willingtochangetimeanddayof
travelandairporttofindseatatlowestpossiblefare
Willingtomakeconnections
Type4 InsensitivetobothTimeandPrice
Fewpassengerswhoarewillingtopayforhighlevelsofservice.
CanbecombinedwithType1
45

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AirlineEconomics

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

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CENTER FOR AIR TRANSPORTATION SYSTEMS RESEARCH

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