THE ROLE OF WEALTH IN THE DEMAND FOR INTERNATIONAL AIR-TRAVEL

Empirical studies of demand for air travel have consistently tailed to employ variables representing consumers wealth. To remedy this the authors formulate and estimate an aggregated time series model of medium to long distance international air travel demand for Israel, which includes variables representing current income, financial assets and non-financial assets. Consumers' wealth is found to be a significant determinant of air travel. Demand elasticities with respect to financial and non-financial assets are statistically similar and well below a unit. Failure to include consumers' wealth variables in the estimated equations yields price elasticities which are biased downward and income elasticities which are biased upward.