Empirical estimation of price and income elasticities of air cargo demand: The case of Hong Kong

Abstract

This paper estimates the price and income elasticities of air cargo demand and examines how they may change after the 2008 financial crisis. Using a set of time series data, we simultaneously estimate the aggregated demand and supply functions of air cargo at Hong Kong International Airport (HKIA). We find that during the entire sampling period of 2001–2013, the price elasticity for air cargo transport demand at HKIA ranges from −0.74 to −0.29, suggesting that air cargo demand in Hong Kong reacts negatively to price (as expected) but does not appear to be very sensitive to price. The income elasticity ranges from 0.29 to 1.47 and appears sensitive to seasonality adjustment approaches. However, in terms of the speed of changes, air cargo demand changes much faster than overall economy, indicating the presence of a pro-cyclical pattern of air cargo traffic with respect to the overall economy. Our analysis shows that air cargo demand becomes more sensitive to changes in both price and income after 2008.