Air Travel Price Index sample essay

National bureaus, such as Bureau of Labor Statistics (BLS) and Bureau of Transportation Statistics (BTS), effectively utilize a so-called Air Travel Price Index (ATPI). (Because these two bureaus use the same title for different indexes, I will only refer to Transportation’s ATPI to avoid confusion.) As stated at the BTS web-site, the ATPI “is a quarterly measure of change in airfares since the first quarter of 1995.” In simpler words, it is a measure of prices on air-flights, used to compare air fares of any year with another year’s fares. The input numbers are derived from the Passenger Origin and Destination Survey (O&D). The actual sample of the measure is the 10% from the entire population of tickets. The measure only covers American Carriers, and the first period of the measure (the base period) is first quarter of 1995.

The ATPI is presented in three series: domestic, foreign, and full-scope. Domestic origin ATPI measures itineraries originated in the U.S. The Foreign ATPI measures costs of itineraries of foreign origin and U.S. destination. And finally, Full-Scope ATPI is a combination of the two. There are also additional versions of the index, which measure separate urban areas independently. However, they are only used to trace local changes and trends.

Some of the disadvantages of the index include that it cannot show how much clients pay for the tickets, and that it does not include charter flight fares. However, statisticians do not need this information to observe the changes in prices for flights, which is the main purpose of the index. So, as stated at the BTS web-site, “ATPI is used to track changes in the prices paid for air travel.”

The collection of data for the measure is interesting. As stated earlier, the sample consists of 10% of the entire population of airline tickets. How they take each tenth is they simply have the airport people input the ticket data in the sample in case the unique number of the ticket ends with a zero. This way, they naturally receive valid, unbiased observations. Such information as the actual fare, destinations, service class, etc. is taken from each ticket. However, it is important to note that the ATPI not only includes the initial price of the flight, but it also includes some additional expenses customers pay, such as various airport service fees, taxes, etc. Thus, instead of using the published fares, the index measures the actual fares paid by customers.

So, once the bureau has the sample, they should actually perform the calculation. They get the final number with the help of Fisher’s price index. This index is a geometrical mean of two other widely used price indexes, namely Laspeyres index and Paasche index (both named after their inventors). The two indexes are very similar, however there is a difference between them. Paasche index is ?Pp=(?p1q1)/ (?p0q1), while Laspeyres’ index goes ?Pl=(?p1q0)/ (?p0q0). The difference between the two consists in one term in denominator and one term in numerator. What these formulas means is, the change in price level ?P is equal to the ratio of a) sum of prices of the second period multiplied by the quantities in the second period over the sum of prices in the initial period multiplied by the quantities in the second period; and b) sum of prices in the second period multiplied by the quantities in the initial period over sum of products of prices and quantities of initial period. Fisher index, in turn, equals Pf = v(?Pp?Pl). So the statisticians have to take all the data, split it into separate batches, and calculate p’s and q’s. p’s are the prices or fares for a certain flight, and q’s are the quantities of tickets sold (or rather 10% of it). They have to perform thousands of such similar operations to derive the final output.

The index itself is a number close to a hundred. The hundred is the relative price of air travels in the first quarter of 1995. As stated earlier, this is the base period. And all the consecutive indexes indicate the number relative to the base period. Thus, an indication of 120 means that current year’s prices are 20% higher than fares of base period. In addition, using simple arithmetic, we can calculate the relative change between two different years. For example, if we take two random years, and compare the ATPI’s of 105 and 125, we can measure the change by deducting the indexes (125-105=20), determining the relative difference (20/105=0.19), and multiplying the result by 100%. This, the change between some random years a and b constitutes 19% growth.

It is necessary to note that everything stated earlier refers to the ATPI used by the transportation bureau, while labor statistic bureau uses a little different index, although they are entitled identically. The major difference between the two is that the ATPI used by BTS includes discount fares, such as credit card discounts, Internet specials, frequent flyer awards, etc. Besides, the BLS’ index uses another formula, namely Modified Laspeyres index. Furthermore, labor statisticians measure the data monthly, not quarterly, and they collect prices for sold tickets, not used. The final difference is that the BLS index only covers domestic carriers and flights, while ATPI full-scope series also cover foreign flights.

Ultimately, the Air Travel Price Index is a very useful tool to measure the change of air travel fares, which is measured and used in Bureau or Transportation Statistics. This is a quarterly measure of all (but charter) tickets sold and used within the United States, and to some extent even those sold outside U.S. With the help of this index, one can compare the national or regional air-fares, which is a very useful tool in economics. Air travel ticket prices reflect the people’s desire to travel inside and outside the country, and reflect people’s trust to airplanes. For example, ATPI was extremely useful after the 911 terrorist attacks. The index showed that there was a dramatic decrease of prices, which was naturally caused by the decreased demand for air traveling. And this is only one example where ATPI can be effectively utilized. Thus, Air travel price index is an important indicator which scholars use to observe changes in American economy.

Bibliography

1. Air travel price index. Bureau of Transportation Statistics. Retrieved April 16th, 2006 from http://www.bts.gov/help/air_travel_price_index.html

2. Wikipedia contributors (2006). Price index. Wikipedia, The Free Encyclopedia. Retrieved 22:53, April 16, 2006 from http://en.wikipedia.org/wiki/Price_index
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