Consumer demand at American Airlines has been anemic over the past four years. Reasons range from the effects of terrorist attacks, the downturn in the economy, the war in Iraq, the SARS epidemic in Asia, soaring fuel costs and intense competition from the entry of newer low-cost carriers with point-to-point business models such as Southwest, JetBlue, AirTran and Spirit (America's airlines, flying on empty, 2005). In the summer of 2005 things finally started looking up, airline passenger numbers increased and planes were on average seventy-nine percent full. However, revenues per seat ("yields") were still falling, decreasing by 1.8 percent for the same period in 2004. And, then even more dramatic fuel costs increases kicked in, with a serious impact on American's bottom line. .

             The airline industry is characterized by very complex pricing dynamics, depending on travel distance, type of traveler, and domestic and international flights, to name a few of the many factors that determine the degree of price elasticity or inelasticity (Air travel demand elasticities: Concepts, issues and measurement). For long-haul international business travel, demand is not sensitive to fare changes because there are few close substitutes. On the other hand, long-haul domestic business travelers have much higher elasticities than international business travelers. Telecommunications has become more acceptable as a substitute in domestic markets due to common culture, laws, contracts, etc. Likewise, international leisure travelers have greater elasticity than do international business travelers. These consumers are more likely to either postpone their trips in response to higher fares or seek locations that are not as expensive. .

             Not surprisingly, the elasticity for short/medium-haul leisure is the highest of all travel types (Air travel demand elasticities: Concepts, issues and measurement).