Airline ticket prices are notoriously difficult to understand. Prices fluctuate wildly depending on the time of day, day of the week, time of year, and even destination. So, what determines the price of airline tickets? Is it elastic or inelastic?
Firstly, let’s understand the difference between elastic and inelastic. In economics, elasticity refers to the responsiveness of demand to a change in price. If demand is highly responsive to a price change, it is considered elastic. If demand is less responsive to a price change, it is considered inelastic.
When it comes to airline ticket prices, it can be argued that they are both elastic and inelastic. That is because there are different factors at play that affect the demand for airline tickets. For example, business travelers may be less sensitive to price changes than leisure travelers. In general, a higher income level may result in a less elastic demand for tickets.
On the other hand, seasonal factors, such as peak travel times or holidays, can create highly inelastic demand. People may be willing to pay a premium for travel during specific times of the year, regardless of the cost. For example, flights during Christmas and New Year’s may be significantly more expensive, and yet people are still willing to pay the price to be with their loved ones.
Another factor that can affect the elasticity or inelasticity of airline ticket prices is competition. If there are many airlines flying to the same destination, then we might expect the demand to be more elastic. Customers have more choices, so they can shop around to find the best deals. In contrast, if there is only one airline flying to a particular destination, then the demand could be more inelastic. Customers do not have a choice and must pay the price if they want to travel to that destination.
It is also worth noting that pricing strategies can play a role in the elasticity or inelasticity of airline ticket prices. For example, airlines may offer last-minute discounts to fill empty seats, making the demand more elastic. Alternatively, airlines may use dynamic pricing algorithms that adjust the price of tickets based on factors such as supply and demand, which could increase the inelasticity of the demand for that route.
In conclusion, airline ticket prices are both elastic and inelastic. Factors such as seasonality, income, competition, and pricing strategies can all affect how sensitive customers are to price changes. Understanding these factors can help both airlines and consumers make more informed decisions about pricing and purchasing airline tickets.
