1. AFFILIATED WITH

2. A change in demand should not be confused with achange in the quantity demanded. A change in demandis a shift in the entire demand curve, either to the right(an increase in demand) or to the left (a decrease indemand).The passengers state of mind concerning a ticketpurchase has been altered because of a change in oneor more of the determinants of demand. As used byforecasters, the term demand refers to a schedule orcurve; therefore, it means Demand Shift. 3. Airline B lowers its price on a particularflight, with the result that Airline A, witha flight departing 15 minutes later, losespassengers. 4. Airline C lowers its price on a particularroute segment and experiences anincrease in the number of passengerscarried. 5. Passengers incomes rise as a result ofa turnaround in the economy, resultingin more vacation traveling. 6. The law of demand tells us that consumerswill respond to a price decline by buyingmore of a product or service. Butconsumers degree of responsiveness to aprice change may vary considerably.Economists, forecasters, and airline priceanalysts measure how responsive,or sensitive, passengers are to a change inthe price by elasticity of demand. 7. The demand for some air travel is such thatpassengers and shippers are relativelyresponsive to price changes; price changesgive rise to considerable changes in thenumber of passengers carried. This iscalled elastic demand. 8. For other air travel, passengers arerelatively unresponsive to price changes;that is, price changes result in modestchanges in the number of additionalpassengers motivated to fly. This is knownas inelastic demand. 9. Coefficient: a multiplier or factor that measures a particular property. E.g,Lift coefficient, Drag coefficient, etc.Pricing analysts and others measure the degree ofelasticity or inelasticity by the elasticity coefficient, or Ed,by the above formula ( = change) 10. Elastic Demand. Demand is elastic if a givenpercentage change in price results in a largerpercentage change in passengers carried.For example, demand is elastic if a 7 percent decreasein price results in a 12 percent increase in the numberof passengers carried.In all such cases, where demand is elastic, theelasticity coefficient will obviously be greater than 1. 11. A decrease in price results in an increase in total revenue, andan increase in price results in a decrease in total revenue.Elastic Demand 12. Demand is inelastic if a given percentage change inprice is accompanied by a relatively smaller change inthe number of passengers carried. For example, if a 10percent decrease in price results in a 5 percent increasein the number of passengers carried, demand isinelastic. 13. A decrease in price results in a decrease in total revenue, and an increase inprice results in an increase in total revenue. 14. A decrease in price results in a decrease in total revenue, and an increase inprice results in an increase in total revenue. 15. Competition. Generally speaking, the more competition there is(the more substitutes and alternatives), the more responsive(elastic) consumers will be. For example, if four carriers areoperating flights within 15 minutes of one another to a particularcity and one offers a lower fare, a passenger likely will fly withthat carrier, all other things being equal. 16. Distance. Long-haul flights tend to be more elastic than short-haulflights. Thus, vacationers will be responsive to a farereduction of $100 on a $500 fare even if they have to leavebetween Tuesday and Thursday. Short-haul fare changes tend tobe inelastic.A 10 percent increase on a $30 fare is only $3. A carrier willgenerally not experience a 10 percent or greater decrease inpassengers for such a small amount. 17. Business Versus Pleasure. Business fliers tend to be lessresponsive to price changes than vacationers or individuals onpersonal trips. Why? Most businesspeople are on expenseaccounts and have to make their trips within a certain period oftime. Nor are they generally willing to take a late-night flight totake advantage of a discount.Vacationers can arrange their schedules and be much moreelastic (responsive) to price changes if it is worth it to them. 18. Time. Certainly, if we have time, we can be much moreresponsive to price changes than if we do not. On the other hand,if we have time and must be at a certain place at a particular time,we generally will be very inelastic with regard to price changes.For example, fares to Lahore may be going up by 20 percentnext week, but if your friend is getting married there next month,you cannot be responsive by flying out there now to save theextra 20 percent. 19. Case Study No Frills Fare WarTypes of Passenger FaresNo Frills Fare StructurePricing ProcessIntro to Airline CostsOutput Determination