Analysis of Air Travel Demand Factors and Long-Term Growth

This report examines the factors influencing the demand for air travel. It highlights the impact of economic growth, increased disposable incomes, and the rise of budget airlines. The analysis also considers the price of air tickets and the availability of alternative transportation methods like high-speed rail. The report further discusses the long-term growth prospects of the air travel industry, emphasizing the role of low-cost carriers and the expanding target market, particularly in the Asia Pacific region. The report concludes that with no readily available substitutes, air travel is poised to continue growing in the long run. The report references academic sources such as Mankiw (2014) and Arnold (2015) to support its arguments and observations.

ADVANCED AVIATION ECONOMICS
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ADVANCED AVIATION ECONOMICS
Question 1
There are various factors that are expected to drive demand for air travel. One of these is the
increase in purchasing power of the people coupled with economic growth. Typically higher
economic growth would imply that the disposable incomes would increase. With higher
disposable incomes, the discretionary spend on travel and tourism is expected to increase.
Also, it is estimated that development of backward regions would improve resulting in high
industrialisation and improved connectivity (Mankiw, 2014).
Another factor which is important is the price of air tickets. Airline travel tends to obey the
law of demand and hence lower prices would imply higher air travel. Hence, entry of budget
airlines would be a positive sign for the industry. Further, the price of the alternatives such as
high speed rail would also be a deciding factor as the underlying elasticity of the air travel to
an extent would be influenced by the availability of cheaper alternatives (Arnold, 2015).
Question 2
In the recent times, there has been an increase in the low cost carriers and budget airlines
globally which has propelled the growth of passenger traffic by expanding the target market.
It is expected that this trend would continue in the future. The impact of higher discretionary
spending is also leading to higher demand for air travel. This is especially the case with Asia
Pacific region which is witnessing the fastest growth rate in terms of passenger traffic for last
three years (Rosen, 2018). It is expected that air travel would continue to grow in the long
run considering that no close substitutes is available. The high speed rail infrastructure is only
available on selected routes.

ADVANCED AVIATION ECONOMICS
References
Arnold, A.R. (2015). Microeconomics (9thed.). New York: Cengage Learning.
Mankiw, G. (2014) Microeconomics (6thed.). London: Worth Publishers.
Rosen, E. (2018) Over 4 Billion Passengers Flew In 2017 Setting New Travel Record,
Retrieved from https://www.forbes.com/sites/ericrosen/2018/09/08/over-4-billion-
passengers-flew-in-2017-setting-new-travel-record/#375e0257255b