The Evolution of British Package Holiday Prices in the Balearic Islands, 2000–2008

Abstract

This paper analyses the evolution of package holiday prices in the Balearics marketed by a sample of British tour operators during 2000–2008. Three alternative price indexes are presented to measure the evolution of the package holiday prices: a fixed-base hedonic, chained hedonic and chained Laspeyres price index. The results demonstrated that the fixed-base hedonic price index underwent a very slight increase during the period, while the chained hedonic price index and chained Laspeyres price index decreased in value. A comparison of these indexes with two competitiveness indicators (the British Consumer Price Index and the British Package Holidays Price Index) shows that the price of package holidays in the Balearic Islands dropped in value in relation to both the British cost of living index and the general package holiday price index for Britons. An elementary tourism demand function was also estimated, using the constructed indexes, suggesting that British demand was not very sensitive to the price of the Balearic package holiday.