Why Airline Tickets are Considered Inelastic – A Complete Explanation

Airline tickets are often considered to be an example of an inelastic product. This means that the demand for these tickets does not change to a significant extent, even if there is a change in price. In this article, we will explore why and how airline tickets are considered inelastic and what factors contribute to this phenomenon.

Firstly, the reason behind this inelasticity is the lack of substitutes for air travel. With other modes of transport such as trains and buses, if the price of one service increases, consumers can opt for another mode of transport. However, when it comes to air travel, there is no direct substitute for a flight to a particular destination. If someone needs to travel a long distance quickly, or to a location that is far away, air travel remains the only feasible option.

Another factor that contributes to the inelasticity of airline tickets is the limited number of airlines operating on specific routes. In some cases, there may only be one airline operating on a particular route, such as smaller airports in less populated areas. In such situations, consumers have no choice but to purchase a ticket from that one airline, regardless of the price.

Furthermore, the airline industry is a high fixed cost industry, which means that airlines need to cover these costs regardless of the number of passengers on board. Therefore, airlines look to maximize their revenue per available seat mile (RASM) and will set prices to cover their fixed costs. This is why airlines often engage in price discrimination, charging different fares for different individuals or circumstances. For example, business-class fares are usually much higher than economy-class fares, even though the physical space on the plane isn’t significantly different.

Moreover, airlines commonly use dynamic pricing, where they adjust fares based on seasonal demand, competition, and market conditions. During peak travel periods, such as holidays, school breaks, or major events, airlines will increase prices to take advantage of the higher demand. However, ticket prices will remain similar during off-peak periods due to lower demand.

In summary, airline tickets are considered inelastic due to the lack of substitutes, limited competition on some routes, and the high fixed costs of the airline industry. The supply and demand dynamics drive prices, but the overall demand for air travel remains relatively constant across a range of price points.

Ultimately, factors that influence the demand for airline tickets and the behavior of consumers in the industry are complex. With constant competition between airlines and ever-changing economic conditions, the balance between consumer demand and pricing remains in a constant state of flux. However, with a better understanding of why airline tickets are considered inelastic, consumers can perhaps make more informed decisions when purchasing tickets to travel.