Since 1975, for about 20 years, air transport service had been provided by single Governmentrnenterprise, Ethiopian Airlines. The sector was moderately opened to private investors by thernFederal Democratic Republic of Ethiopia Investment Proclamation No. 3711996. Thernrestrictive provisions of this proclamation permit only Ethiopian nationals to invest in thisrnsector using aircraft of maximum loading capacity up to 20-passenger or cargo capacity uprnto 2700kg. However, the proclamation plays no significant role in enhancing the capacity andrncompetition in the overall domestic passenger air transport service and none in scheduledrnone.rnrnIt is hypothesized that air travel demand is determined by income of the population, price ofrnair travel, access to alternative means of transport and price of competing service.rnFurthermore, the demand of air travel is expected to be price inelastic. Using quarterly timernseries data and co-integration analysis the long- run relationship result suggested that pricernof air travel, income and access to alternative means of transport significantly determine therndemand for air travel while price of competing service is insignificant. In the short-runrnanalysis only price of air travel is found to be significant while the other variables are notrnsignificantly different from zero. The result also suggested that the price elasticity of demandrnfor air travel is unitary. The policy conclusion is that price is a significant factor determiningrnschedule domestic air transport demand and hence private participation, competitiveness andrnsupply of the service in Ethiopia.