Understanding The Demand For Air Travel: How To Compete More Effectively

Two rules of thumb often cited through out the airline industry are "Demand for air travel grows twice as fast as gross domestic product" and "Airline yields always drop over time." Both statements are at least partly true. Yet few industry participants stop to think about how fundamentally intertwined they are. Individual airlines, as well as the industry as a whole stiffer when care is not taken with demand forecasting. The challenge lies in distinguishing between growth in underlying demand and growth in induced demand. Excess capacity beyond underlying demand will lead to declining yields as airlines lower prices in order to induce demand for seats that would otherwise go empty.