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June 2005, Vol. 128, No. 6
A transaction price index for air travel
Janice Lent and Alan H. Dorfman
Special discount airfares, facilitated by the Internet and "frequent-flyer" programs, complicate efforts to measure changes in the price of commercial air travel. Endeavoring to fill their flights, airlines offer a variety of discount fares through several media (credit card points, supermarket coupons, and the like). The official Consumer Price Index (CPI) for commercial air travel, however, is based on prices listed by the airlines in SABRE, a reservation system used by many travel agencies. Thus, the CPI fails to reflect price changes that may be effected through special discounted prices and frequent-flyer awards. This article reports on a study whose aim was to produce an index series based on actual prices paid by consumers. The most promising data set currently available for that purpose is the Transportation Department’s Data Bank 1B, which contains data from the quarterly Passenger Origin and Destination (O&D) Survey, collected by the U.S. Government’s Bureau of Transportation Statistics. These data are itinerary based: each observation consists of a fare (the actual fare paid, including tax), a sequence of airports and carriers, and other details of an itinerary traveled by a passenger or a group of passengers.
The Department of Transportation is developing plans to improve and expand the O&D Survey. The additional data that the Department plans to collect will greatly enhance analysts’ ability to compute detailed price indexes; among the new data is detailed information regarding the sale of the airline ticket, as well as transaction fares for flights in the recorded itineraries. The Department also plans to improve the timeliness of the survey data. Currently, the data become available with a lag of 3 to 6 months—too late to be used in computing the airfare component of the CPI. This article examines research aimed at computing price indexes from the current O&D Survey data. The Bureau of Transportation Statistics will soon be publishing the new quarterly experimental Air Travel Price Index (ATPI) series, computed at a variety of aggregation levels.
This excerpt is from an article published in the June 2005 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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