Effect of Air Services

Availability on
International Visitors to
New Zealand

Aaron Schiff & David Timothy Duval

Introduction

• A number of New Zealand direct international air

routes have experienced gains or losses of all services
over the past 30 years.

• What effects have these significant changes in service

availability had on international visitor arrivals from the
countries involved?

• Controlling for other factors that may affect visitor

arrivals: GDP and exchange rates.
Changes in Direct Services
Country Airline(s) Direct services available
Canada Air New Zealand Nov 85 – Feb 92
Sep 97 – Nov 98
Nov 07 – Current
Canadian Airlines Nov 85 – Apr 91
International Oct 97 – Dec 98
Chile LAN Airlines Jul 02 – Current
Mainland China Air New Zealand Nov 06 – Current
Air China Jul 00 – Mar 01
Indonesia Air New Zealand Sep 90 – Oct 97
Garuda Indonesia Nov 85 – Nov 06
South Korea Air New Zealand Nov 93 – Jan 98
Korean Air Nov 93 – Current
Asiana Airlines Oct 03 – Mar 05
Taiwan Air New Zealand Aug 91 – Mar 06
EVA Airways Sep 94 – Aug 08
China Airlines Mar 00 – Oct 01
United Arab Emirates Emirates Aug 03 – Current
 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
1979-1 16,000
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
1987-1
Canada Arrivals

1988-1
1989-1
1990-1
1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
200

100
150
250
300
350
400
450
500
550
600
650
700
750
800
850
900

50
1979-1
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other
Chile Arrivals

1986-1
1987-1
1988-1
1989-1
1990-1
1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
1979-1 28,000
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
1987-1
1988-1
1989-1
1990-1
1991-1
1992-1
1993-1
1994-1
Mainland China Arrivals

1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
3,000
3,250
3,500
3,750
4,000

250
500
750
1979-1
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
1987-1
1988-1
1989-1
Indonesia Arrivals

1990-1
1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
8,000

2,000
4,000
6,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
1979-1 36,000
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
1987-1
1988-1
1989-1
1990-1
South Korea Arrivals

1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
1979-1 19,000
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
Taiwan Arrivals

1987-1
1988-1
1989-1
1990-1
1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
 0
1,000
1,100
1,200
1,300
1,400
1,500
1,600

100
200
300
400
500
600
700
800
900
1979-1
1980-1
1981-1
1982-1
Holiday

1983-1
1984-1
1985-1
Other

1986-1
1987-1
1988-1
1989-1
1990-1
1991-1
1992-1
1993-1
1994-1
1995-1
1996-1
1997-1
1998-1
1999-1
United Arab Emirates Arrivals

2000-1
2001-1
2002-1
2003-1
2004-1
2005-1
2006-1
2007-1
2008-1
2009-1
Empirical Models

• Dependent variable: Log arrivals from country i for

purpose j = {Holiday, Other} in quarter t ( Ait, j )

• Independent variables:
• Log real GDP of country i in quarter t (GDPi t )
• Log exchange rate of currency i to NZD in quarter t (ERit )
• Direct air service dummy for country i in quarter t ( Dit )
• Takes value 1 if services available for at least 2/3 months in the quarter;
value 0 otherwise
• Quarterly dummy variables (Q2t , Q3t , Q4t )
Data
• Quarterly international visitor arrivals by country of
residence and purpose of visit.
• Stats NZ International Visitor Arrivals (IVA) database.
• Sample of approx 1/25 arrival cards.

• Quarterly seasonally adjusted real GDP (national currency).

• OECD stats online database (except Taiwan).
• Reliable quarterly data for China & UAE could not be obtained.

• Exchange rates (foreign currency units per NZ dollar).

• International Financial Statistics database of the IMF
(except Taiwan)
Model 1

• Availability shifts arrivals up or down by a constant

amount.
𝐴𝑡𝑖,𝑗 = 𝛼 + 𝛽𝐺𝐷𝑃𝑖𝑡 + 𝛾𝐸𝑅𝑖𝑡 + 𝛿𝐷𝑖𝑡 + 𝜃1 𝑄2𝑡 + 𝜃2 𝑄3𝑡 + 𝜃3 𝑄4𝑡 + 𝑒𝑖,𝑗
𝑡

• Intercept when services

not available: 

• Intercept when services

are available:  + 
Model 2
• Availability changes the slope of arrivals with respect to
GDP and / or exchange rate.
𝐴𝑡𝑖,𝑗 = 𝛼 + 𝛽1 𝐺𝐷𝑃𝑖𝑡 + 𝛽2 𝐷𝑖𝑡 𝐺𝐷𝑃𝑖𝑡 + 𝛾1 𝐸𝑅𝑖𝑡 + 𝛾2 𝐷𝑖𝑡 𝐸𝑅𝑖𝑡 + 𝜃1 𝑄2𝑡 + 𝜃2 𝑄3𝑡 + 𝜃3 𝑄4𝑡 + 𝑒𝑖,𝑗
𝑡

• GDP slope when services

not available: 1
• GDP slope when services
are available: 1 + 2

• ER slope when services

not available: 1

• ER slope when services

are available: 1 +  2
Model 3

• Availability changes both the intercept and slopes.

𝐴𝑡𝑖,𝑗 = 𝛼 + 𝛽1 𝐺𝐷𝑃𝑖𝑡 + 𝛽2 𝐷𝑖𝑡 𝐺𝐷𝑃𝑖𝑡 + 𝛾1 𝐸𝑅𝑖𝑡 + 𝛾2 𝐷𝑖𝑡 𝐸𝑅𝑖𝑡 + 𝛿𝐷𝑖𝑡 + 𝜃1 𝑄2𝑡 + 𝜃2 𝑄3𝑡 + 𝜃3 𝑄4𝑡 + 𝑒𝑖,𝑗
𝑡
Autocorrelation

• Arrivals time series exhibit significant autocorrelation.

• Allow for one or more autoregressive lags in the residual, e.g.

AR(1) process:
𝑡 𝑡−1 𝑡
𝑒𝑖,𝑗 = 𝜌𝑒𝑖,𝑗 + 𝜀𝑖,𝑗

• Models estimated using arima in STATA (maximum likelihood).

• Number of lags determined using estimated autocorrelation and

partial autocorrelation functions (usually 1 or 4 lags).

• Durbin-Watson and Dickey-Fuller tests on residuals.

Results: Canada
Holiday Arrivals Other Arrivals
Variable
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
-6.62 -6.08 -6.20 **-12.86 ***-13.16 ***-13.42
Constant
(5.93) (5.93) (5.23) (5.32) (5.42) (4.79)
***1.26 **1.21 ***1.22 ***1.71 ***1.73 ***1.76
GDP
(0.48) (0.48) (0.42) (0.43) (0.44) (0.39)
-0.03 -0.08 -0.17 0.20 0.24 0.19
ER
(0.21) (0.22) (0.24) (0.16) (0.17) (0.19)
0.06 4.41 *0.09 2.33
D
(0.05) (2.91) (0.05) (2.77)
0.01 -0.34 0.00 -0.18
GDP x D
(0.01) (0.23) (0.01) (0.22)
0.34 0.51 -0.20 -0.10
ER x D
(0.38) (0.41) (0.37) (0.38)
R2 0.95 0.95 0.95 0.94 0.94 0.94
N 124 124 124 124 124 124
Results: Chile
Holiday Arrivals Other Arrivals
Variable
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
***-45.92 ***-42.94 ***-44.54 **-39.28 ***-36.53 -2.35
Constant
(10.22) (10.13) (11.55) (16.57) (8.65) (7.69)
***3.10 ***2.62 ***2.70 ***2.66 ***1.94 0.01
GDP
(0.51) (0.56) (0.63) (1.01) (0.60) (0.37)
0.04 0.90 0.95 0.27 **1.85 **1.31
ER
(0.83) (0.90) (0.90) (0.62) (0.82) (0.62)
0.55 3.16 -0.11 ***-60.52
D
(0.38) (18.74) (0.30) (11.70)
0.61 0.46 **1.15 ***4.41
GDP x D
(0.43) (1.04) (0.45) (0.57)
-1.63 -1.75 **-3.25 **-1.97
ER x D
(1.22) (1.34) (1.29) (0.80)
R2 0.87 0.89 0.89 0.83 0.85 0.89
N 60 60 60 60 60 60
Results: Indonesia
Holiday Arrivals Other Arrivals
Variable
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
8.19 8.87 -40.96 **-5.19 **-5.25 7.80
Constant
(6.67) (6.76) (38.28) (2.45) (2.44) (14.89)
0.31 0.77 3.92 ***0.93 *0.80 0.10
GDP
(0.53) (1.11) (2.50) (0.20) (0.47) (0.92)
***-0.62 -1.39 -0.44 0.01 0.20 -0.24
ER
(0.14) (1.69) (1.62) (0.04) (0.68) (0.84)
-0.17 52.99 0.06 -13.35
D
(0.26) (40.14) (0.07) (15.02)
-0.54 -3.94 0.14 0.86
GDP x D
(1.13) (2.67) (0.46) (0.94)
0.79 -0.17 -0.20 0.24
ER x D
(1.70) (1.63) (0.68) (0.84)
R2 0.76 0.76 0.77 0.70 0.70 0.70
N 68 68 68 68 68 68
Results: South Korea
Holiday Arrivals Other Arrivals
Variable
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
***-47.37 ***-58.40 ***-73.68 ***-29.51 ***-36.08 ***-31.63
Constant
(11.35) (15.46) (19.45) (5.45) (5.10) (7.49)
***3.67 ***3.81 ***4.38 ***2.06 ***2.10 ***1.92
GDP
(0.60) (0.66) (.70) (0.30) (0.25) (0.37)
***-2.14 -0.76 .07 -0.29 *0.67 0.49
ER
(0.48) (1.28) (1.45) (0.26) (0.39) (0.39)
0.82 44.49 ***0.72 -9.98
D
(0.66) (30.92) (0.26) (15.36)
*0.77 -1.37 ***0.57 1.05
GDP x D
(0.42) (1.39) (0.20) (0.82)
*-2.24 *-2.95 ***-1.61 **-1.44
ER x D
(1.28) (1.51) (0.60) (0.63)
R2 0.96 0.96 0.96 0.97 0.98 0.98
N 124 124 124 124 124 124
Results: Taiwan
Holiday Arrivals Other Arrivals
Variable
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
-19.39 -23.00 -24.50 **-18.82 *-14.66 *-14.86
Constant
(14.27) (14.50) (16.51) (8.62) (8.51) (8.53)
**2.06 **2.23 **2.33 ***1.90 ***1.82 ***1.83
GDP
(0.97) (0.99) (1.13) (0.59) (0.58) (0.58)
**-0.78 -0.39 -0.37 -0.57 ***-1.56 ***-1.56
ER
(0.32) (0.39) (0.39) (0.46) (0.52) (0.52)
0.23 4.01 0.28 1.21
D
(0.25) (11.96) (0.37) (25.12)
0.16 -0.14 -0.32 -0.41
GDP x D
(0.16) (0.89) (0.24) (1.76)
-0.75 -0.60 1.70 1.75
ER x D
(0.82) (0.87) (1.14) (1.17)
R2 0.92 0.92 0.92 0.88 0.88 0.88
N 105 105 105 105 105 105
Results Summary

Country Holiday Other Arrivals

Arrivals
Canada
Chile
Indonesia
South Korea
Taiwan

No evidence Weak evidence Strong evidence

Discussion & Policy Implications

• Effect of air services availability on arrivals is mixed.

• More evidence of effects on ‘other’ arrivals than holiday

arrivals.
• Business travellers more sensitive to the convenience of direct
flights?

• Results likely reflect the availability and convenience of

indirect routings in the absence of a direct route.
• Chile vs Taiwan

• Idiosyncratic country characteristics may also play a role.

• South Korea
Discussion & Policy Implications

SCL – AKL: 9,674 km TPE – AKL: 8,871 km

SCL – LAX – AKL: 19,430 km TPE – HKG – AKL: 9,962 km
Discussion & Policy Implications

• Regional hubs and third-country carriers provide sufficient

airlift for many visitors from countries without non-stop or
direct air services.

• A policy to secure non-stop or direct services from many

countries may be inefficient.
• Our results suggest that these efforts would not result in a net
growth in arrivals in most cases.
• But, need to take the characteristics of the market into account.

• New Zealand’s liberal air rights approach, combined with

the presence of larger third-country airlines, are more
critical factors.