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CAA publishes report on drivers of demand for leisure air travel

The Civil Aviation Authority (CAA) has published a report entitled…

The Civil Aviation Authority (CAA) has published a report entitled  `Demand for Outbound Leisure Air Travel and its Key Drivers`. The report sets out the facts on, and the latest analysis of, how changes in income, wealth, air fares and the composition of the population affect demand for leisure air travel.

Fast recovery and traffic growth

Passenger traffic at UK airports has grown at an average annual rate of about 6 per cent since the mid 1970s. This is more than twice the rate of economic growth in the UK and considerably faster than traffic growth in most other developed aviation markets during the same period.

Figure 1 shows that passenger numbers in the UK recovered quickly from a series of adverse events, including 11 September, SARS, the second Gulf War and the Madrid bombing, and that traffic is back to its underlying growth path.

Strong relationship between changes in income and demand growth

UK residents travelling abroad for leisure purposes have been by far the fastest growing component of total international traffic at UK airports since the European aviation market was liberalised in 1993. Most UK consumers appear to have a strong preference for holidaying abroad. And, as affluence increases, so does the willingness to spend money on foreign holidays in preference to holidays in the UK. Figure 2 shows that both the total number of leisure trips abroad and expenditure on holidays abroad (including air fares) have expanded twice as fast as expenditure on hotels and restaurants in the UK (which has simply grown in line with total consumer expenditure).

Despite this, a number of factors suggest the potential for further market growth. First, Figure 3 shows that consumer expenditure on holidays abroad (including air fares) still accounts for a small proportion of total consumer expenditure (about 5 per cent) relative to other forms of leisure activity. Second, Mintel`s1 market surveys over many years have shown that a considerable proportion of the UK population never go on holiday, or take all, or most, of their holidays in the UK. Figure 4 shows that those who do not take holidays abroad largely come from less affluent socio-economic groups. The less affluent D and E segments are under-represented in outbound leisure air traffic. Together they make up about 25 per cent of the adult population – two and a half times their
share in outbound leisure traffic2. The more affluent and growing AB segments together account for some 32 per cent of outbound leisure air traffic – some 7 percentage points higher than their combined share in the UK population. Taken together, these facts suggest there is potential for further market growth.

The effect of price on leisure air travel

Lower air fares in recent years have stimulated demand, in particular to destinations that previously lacked reasonably-priced air services from the UK, and where lower fares represented significant savings for most travellers. Consumers now have much more choice in terms of destinations, airlines and flight frequencies and they are better informed about various offers available to them. This means that many leisure travellers are now
more likely than in the past to switch between flights, destinations and airlines in response to price differentials. This is particularly the case on short haul, where the flight is largely considered a commodity and
where there is a large number of routes and airlines to choose from.

Bristol airport offers a good example of how consumers benefit from more choice. Before the European market was liberalised in 1993, five scheduled airlines were operating 15 daily services to five international destinations. Nowadays, consumers can choose between nine scheduled airlines operating over 40 daily services to as many as 26 international destinations. A similar position arises at other regional airports. So if air fares increase to particular destinations, leisure travellers can switch to alternative destinations within the same overall budget.

However, the CAA research shows that leisure travel overall is less responsive to air fares than is apparent at the level of the individual airlines or routes. The share of air fares in total travel costs has fallen and demand for leisure air travel may increasingly be influenced by other factors such as changes in the costs of accommodation or leisure activities at the destination. This is illustrated in Figure 5 which shows the breakdown of total costs of a leisure trip to Europe.

UK residents travelling to Europe for leisure purposes in 2004 spent an average of about £560 (in £2004) per trip of which £150, or just over a quarter of the total, was spent on air fares. This means that a given percentage increase in air fares will be equivalent to a much smaller percentage increase in the total costs of a trip to Europe.

“This study brings together economic analysis as well as information on broader social, demographic and business trends. It is a good example of how the CAA can add value to aviation industry debate”, said Dr Harry Bush, Group Director, Economic Regulation.

Theodore Koumelis
Co-Founder & Managing Director - Travel Media Applications | Website

Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.