RELATIVE IMPACT OF INCOME AND PRICE ON SCHEDULED PASSENGER TRAFFIC IN THE U.S. AND CANADA

This paper explains why U.S. jet airlines had a larger growth in scheduled revenue passenger-miles (RPM) than Canadian jet airlines between 1981 and 1993, even though the U.S. gross domestic product (GDP) increased less than Canada's GDP. Regression analyses, using logarithmic transformations and adjusting to eliminate autocorrelation, imply that income (measured by GDP) and average prices (yields plus taxes) influenced RPM to different degrees in each country. Using constant-collar data for 1969-1992, regression analyses calculate a Canadian GDP elasticity of 1.224 and a price elasticity of -1.028. In contrast, the GDP elasticity for U.S. carriers was 1.881 while their price elasticity was -.594. Thus, the U.S. airlines got larger RPM increases from smaller GDP increases. At the same time, a 32% decline in real prices between 1980 and 1992 increased U.S. RPM more than the 8.2% price decrease experienced by Canadian airlines. This despite the higher Canadian price elasticity. Similar results were obtained using current-dollar data. Canadian elasticities were almost equal (1.391 for GDP and -1.385 for prices), compared with 1.087 and -.787 for the U.S. airlines. In this case, Canada's larger growth in GDP was substantially offset by a 75.2% increase in prices, compared with just a 15.4% increase in the U.S. Both analyses imply that price changes served to overcome larger GDP growth in Canada. This has important implications for governments, especially those in Canada, in terms of the adverse impact that tax increases have on their airlines.

Language

  • English

Media Info

  • Features: Figures; Tables;
  • Pagination: p. 213-230

Subject/Index Terms

Filing Info

  • Accession Number: 00727067
  • Record Type: Publication
  • Report/Paper Numbers: Volume 1
  • Files: TRIS
  • Created Date: Oct 16 1996 12:00AM