Estimating the demand responses for different sizes of air passenger groups

This paper investigates the sensitivity of demand for air travel by singleton passengers, couples, and families. It examines how the demand for air travel by these groups is potentially different. In this study, a compound Poisson structure of the demand of different passenger groups is considered, and aggregate demand observations and maximum likelihood procedures are used to decompound the processes and estimate demand sensitivity of each group of customers to price, time, season, and the economic cycle. The methodology is applied to Canadian market data and the results indicate there are significant differences among the different groups of customers.

► We estimated the air travel demand of different group sizes in a Canadian market.
► Compound Poisson distributions and decompounding procedures are used for estimation.
► We show how to translate parameters of the model to economical values of interest.
► Sensitivity of groups were measured with respect to price, economy, time, and season.
► We suggest price discrimination among groups is a profitable strategy for airlines.