Consumer behaviour analysis based on income and price elasticities: The case of the air transportation in Brazil

Abstract

Understanding consumer behaviour based on income-price elasticities of air travel demand is strategic for decision-making in civil aviation industry. The literature analyses markets on a static perspective of demand elasticity, not considering its evolution over time or its diversity throughout the territory. This paper makes use of a panel-data regression analysis method on a database of domestic scheduled flights of Brazil's National Civil Aviation Agency to investigate the passenger demand income-price elasticities for flight connections in Brazil. Its singular nature comprises measuring and comparing the elasticities in different scenarios of the recent Brazilian economic history and considering all the diversity of the country's five geographic macro-regions. The results show different elasticities throughout the territory, depending on the geographical location of the cities involved in the air links. The estimates also vary over time, influenced by the different macroeconomic conditions. By shedding light on the demand elasticity dynamics in a same air market, the paper discusses its explanatory drivers and the strategic implications for the Brazilian civil aviation sector.