Modelling the Demand for Packaged Travel

Abstract

This paper reports the results of an exploratory investigation into the demand for packaged travel. Traditional models of travel demand tend to adopt a simple specification of “price” as a uni-dimensional construct. However, modern yield management practices aim to stimulate demand when required through the use of promotional discounts each distinguished by a set of conditions designed to restrict purchase to the target group. From a modelling point of view, the use of a benchmark fare (e.g. economy fare) or even an average fare does not permit testing of the independent effect of varying the price level. This problem is exacerbated when the promotion bundles the transport service with other travel services in some form of travel package. Yet travel packages are common in long distance travel markets. The problem cannot be addressed simply by expanding the vector of prices to include non-transport elements of the package. The paper describes the considerable practical and theoretical problems that have to be overcome in modelling choice in the presence of packaging. The structure of the choice of package is investigated using nested logit.