Demand is an economic principle referring to a consumer's desire for a particular product or service.

Demand analysis serves three major objectives - provides insights for marketing teams to manage
demand, forecast unit sales to inform operational decisions, and projects the revenue cash flow stream
for financial planning (McGuigan et al., 2017). A demand function creates a relationship between the
demand for a product and factors that affect the demand. The principal variables that influence the
quantity demanded of a good or service include, but are not limited to, the price of the good or service,
the prices of substitute & complementary goods, the incomes of consumers, the prices of related goods
and services, the tastes or preference patterns of consumers, the expected price of the product in future
periods, and the number of consumers in the market (The Investopedia Team, 2022).

For this exercise, I would like to choose airline tickets for commercial aviation. The elasticity of demand
refers to the degree to which demand responds to a change in an economic factor (Hall, 2022). The most
common parameter to measure demand elasticity is with respect to changes in price. For airlines, it’s
representative of how many more passengers would fly (as a %) if the price drops by a certain amount
(as a %). I believe that the demand elasticity of airline tickets is dependent on several factors such as
markets served, airfare class, and distance (short haul vs long haul). As per the IATA report on air travel
demand elasticity, elasticity is high where income levels are relatively higher, it is on routes that are
short haul. That means intra-North America and intra-Europe flights are very elastic and dependent on
price levels. But long-haul flights such as trans-Pacific, markets with limited consumers such intra-Asia,
and intra-Africa are rather inelastic (Smyth & Pearce, 2000). The reasons behind international flights’
low inelasticity are self–evident: Lack of substitutional modes as compared to short-distance flights,
particularly when intercontinental ocean crossing flights are concerned (Skyscanner, 2022). Another
factor is that business travel demand tends to be less sensitive to changes in airfare than demand for
leisure travel as leisure travel is seen to be discretionary while business travel is more of a necessity.

References
Hall, M. (2022, June 30). Elasticity vs. Inelasticity of Demand: What's the Difference? Investopedia:
https://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-
elasticity-demand.asp

McGuigan, J., Moyer, R. C., & Harris, F. (2017). Managerial Economics: Applications, Strategy, and
Tactics. Cengage Learning.

Skyscanner. (2022). Price Elasticity & Air Fares. Skyscanner.

Smyth, M., & Pearce, B. (2000). Air Travel Demand- IATA Economics Briefing. International Air Transport
Association.

The Investopedia Team. (2022, July 21). Demand: How It Works Plus Economic Determinants and the
Demand Curve. Investopedia: https://www.investopedia.com/terms/d/demand.asp