You want to estimate the price elasticity of demand for air transportation on the route Abu Dhabi-London for British Airways company? Explain briefly how you would do that.
Anyone can help me answering this question?
Sure, I can help you with that!
To estimate the price elasticity of demand for air transportation on the Abu Dhabi-London route for British Airways, you would need to follow these steps:
1. Collect data: Start by collecting historical data for the route, such as the number of passengers, ticket prices, and other relevant variables. You may need to consult British Airways' internal database or publicly available data sources.
2. Define variables: Identify the variables that influence the demand for air transportation on this route. Typically, the price of tickets is a significant factor, but there may be other variables like competitor prices, income levels, or seasonality that you may need to consider.
3. Estimate the demand function: Using statistical analysis techniques like regression analysis, estimate a demand function that relates the quantity of passengers traveling on the route to the variables you have identified. The price variable will be the key component in this estimation.
4. Calculate price elasticity of demand: Once you have estimated the demand function, calculate the price elasticity of demand. Price elasticity measures the responsiveness of demand to changes in price. It can be calculated by taking the percentage change in quantity demanded divided by the percentage change in price. A higher absolute value of the price elasticity indicates a more sensitive demand to price changes.
5. Interpret the results: Analyze the calculated price elasticity to understand how sensitive demand is to ticket price changes. A price elasticity greater than 1 indicates that demand is elastic, meaning a change in price will have a significant impact on demand. A price elasticity less than 1 indicates that demand is inelastic, meaning that changes in price have a relatively smaller effect on demand.
Keep in mind that this is a simplified explanation of the process, and the actual estimation may require more advanced statistical techniques and additional data. Additionally, collaboration with the British Airways team and access to their data will be essential in carrying out this analysis accurately.