Estimate of The Impact on Emissions of a Reduction in Air Passenger Duty in Scotland

Annex B

Price Elasticity of Demand

The most disaggregated price elasticity of demand data found was at the UK level, and the latest available estimates were published in the January 2013 DfT publication of UK aviation forecasts^[10].

Table B1: Long run price and income elasticities of UK air passenger demand

Sector	2008 share of passenger traffic	Sector PED	Market PED	Sector YED	Market YED
UBW	6%	-0.3	-0.2	1.3	1.2
UBO	1%	0.0		1.0
UBN	0%	0.0		1.0
UBL	1%	0.0		1.0
ULW	33%	-0.7	-0.7	1.3	1.4
ULO	5%	-0.3		1.3
ULN	1%	-0.6		1.6
ULL	6%	-0.9		1.9
FBW	5%	-0.2	-0.2	1.1	1.0
FBO	1%	-0.2		0.6
FBN	0%	0.0		0.8
FBL	1%	0.0		0.7
FLW	10%	-0.8	-0.6	1.2	1.0
FLO	3%	-0.3		0.5
FLN	0%	-0.2		0.5
FLL	1%	-0.3		0.5
DMB	7%	-0.3	-0.5	1.0	1.7
DML	8%	-0.7		1.5
I to I	10%	-0.7	-0.7	0.5	0.5
Overall	100%		-0.6		1.3

This publication provides a breakdown of elasticities for both price and income, by different trip purpose and length. In this particular analysis the only concern is the price elasticity of demand (PED) and further still, only UK passenger demand. In the table above this demand is prefixed with a 'U' for international trips and 'DM' for domestic flights and these are highlighted in brown.

The other categories in the sectors are as follows:

'B' - business
'L' - leisure
'W' - Western Europe
'O' - OECD countries except those in Western Europe
'N' - newly industrialised countries
'L' - Less Developed Countries

UBO covers UK based passengers travelling on business to OECD countries, ULW UK passengers travelling on leisure to western European countries and DML are UK passengers flying within the UK for leisure purposes.

As the analysis required in this paper needs these categories mapped onto the UK APD bands several adjustments are needed.

For domestic flights, both leisure and business flights map directly across to Band A domestic leisure and Band A domestic business. For Band A international, the assumption made is that this category is made up of group UBW and ULW. All of these categories would fall into the short haul category. As most of the remaining flights from Scotland in bands B and C are to North America UBO and ULO are used for all bands beyond A.

Taking this approach leads to the following elasticities and categories for use in the analysis

Table B2: Elasticities based on trip purpose and APD banding

	Price Elasticity of demand
Domestic (leisure)	-0.7
Domestic (business)	-0.3
International (leisure) - Band A	-0.7
International (business) - Band A	-0.3
International (leisure) - Band B,C,D	-0.3
International (business) - Band B,C,D	-0.2