The effect of increase in airport tax and surcharge on airline revenue

[Syed A Ridhwan 0]

Good day to everyone!

 

Recently, I was given a set of questions for my test and to my delightness, one of questions are aviation related (not in a technical way though). I answered happily, knowing that I have plenty of examples (MH & AK) to give and really hope my lecturer will find my answer satisfactory. That aside, I wonder how would MWingers answer if you ever come across this question.

 

The question goes like this:

 

Discuss how the concept of price elasticity of demand affects the total revenue from the sales of airline ticket following an increase in the airport tax and surcharge.

 

I'm very much interested to see the view/inputs by some of you here who have been closely observing the aviation industry, be it local, regional or worldwide.

 

Cheers!

[Azman MN 1]

airport tax in Europe is very high but air travel is still growing.

 

On the other hand, you can fly into London City which is waaay cheaper than Heathrow in terms of airport tax, but then the airlines charge slightly more for the ticket, hoping that the passengers don't notice it... I guess that is what they are doing because the ticket prices to LCY are usually slightly more expensive.

 

 

 

 

[BC Tam 2]

..... but then the airlines charge slightly more for the ticket, hoping that the passengers don't notice it... I guess that is what they are doing because the ticket prices to LCY are usually slightly more expensive

Could also be possible the general assumption that most pax flying in/out LCY are city fat cats for whom the ticket price premium is more than justified by time saved travelling to/fro LHR or LGW, time that can be more productively utilised in making more money. So for the airlines, why not milk them for what it's worth !

[KK Lee 5]

 

Increase in the airport tax and surcharge applied to all airlines serving the airport, hence, price elasticity of demand among airlines should be perfectly inelastic. However, if compared with other mode of transport or alternate airport, the price elasticity of demand of ticket should be elastic.

 

 

 

[Syed A Ridhwan 0]

Increase in the airport tax and surcharge applied to all airlines serving the airport, hence, price elasticity of demand among airlines should be perfectly inelastic. However, if compared with other mode of transport or alternate airport, the price elasticity of demand of ticket should be elastic.

 

That's exactly my answer! Plus with elaborations and examples of course. Ai, was expecting a bigger response than this. Only 3 replied?

Edited March 15, 2008 by Syed A Ridhwan

[M. Sofian H. 0]

i read from utusan malaysia MAHB will increase the surcharge in KLIA. The reason is because surcharge in KLIA is still lower than other country

(stupid reason)?????

 

[Kenneth T 0]

i read from utusan malaysia MAHB will increase the surcharge in KLIA. The reason is because surcharge in KLIA is still lower than other country

(stupid reason)?????

 

KLIA is probably one of the most quiet international airport in this region. MAB once offered free landing rights and yet the volume of traffic remains low if comparable to Bangkok and Singapore. If such increase is minimal, i think it should not do any major damage to the airport's revenue.

 

[V Wong 0]

i read from utusan malaysia MAHB will increase the surcharge in KLIA. The reason is because surcharge in KLIA is still lower than other country

(stupid reason)?????

 

 

For sure, found out while booking online today that there is a RM3 increase in surcharge per domestic flight... Sigh!