Elasticity-Driven Fare Optimization in U.S. Air Travel Segments
Keywords:
demand elasticity, market segmentation, distance-based pricing, revenue management, dynamic pricing, U.S. air travel marketAbstract
Purpose. This study investigates the variation in price elasticity of demand across U.S. domestic air travel markets, with a particular focus on how different distance-based market segments respond to airfare changes. Design / Method / Approach. The analysis presents air travel markets in the distance categories of very short, short-haul, medium-haul, and long-haul to analyze the heterogeneous nature of price responses. Findings. The results indicate substantial differences in elasticity across directions. In the short-haul markets, the negative price elasticity demonstrates strong awareness of fare increases (ε=-0.344). Conversely, long-haul markets demonstrate price elasticity in a positive direction (ε = +1.840), indicating perceptions of value-added (i.e., direct services quality or even network effects). Medium-haul distances suggest nearly neutral responses, and the very short routes produce statistically insignificant elasticity coefficients. Theoretical Implications. The research expands transportation economics and marketing analytics literature through the analytic demonstration that distance travelled does impact demand elasticity in the case of airline routes. The study provides additional evidence for segmentation theories and distance-based price models. Practical Implications. The results provide airline revenue managers with data-based evidence that depicts the opportunity to develop fare structures that align closer to consumer behaviors and may provide opportunities for enhanced profits by utilizing distance and type of flight configurations. Originality / Value. This study employs an entirely unique segmentation-based approach to enable an elasticity analysis of city-pair air travel market distances by utilizing a wealth of longitudinal data to provide evidence-based recommendations for both academics as well as practitioners. Research Limitations / Future Research. Limitations include the exclusion of international routes and ancillary pricing factors. Future research may explore dynamic pricing strategies in real-time or investigate elasticity in the context of loyalty programs and airline alliances. Article Type. Research article.
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