Basics Facts ee Air transportation demand is related to the socio-economic characteristics of the region in question Demand for air transportation services is greater in more developed regions of the world The noted dependencies between the demand for air transportation services and the socio-economic characteristics of the region are used in the air transportation planning process This process entails the planning of airports, needed transportation facilities, route networks, and planning the network of airways Models to evaluate air transportation demand most often evaluate © The number of potential passengers © The number of passenger kilometers that can be achieved © The expected number of operations (take offs and landings) » A percentage share of the number of air passengers out of the total number of passengersBasic Air Transportation Demand Models CE + As noted by Kanafani (1983), models of air transportation demand can be divided into: - Macroscopic models, and - Microscopic models + Macroscopic models are used to estimate the development of air transportation in a certain country or region. Typical indicators are flights, passengers, cargo, etc. + Microscopic models estimate air transportation demand between two cities. Typical indicators are the passenger traffic in a specific Origin-Destination (OD) route and the number of passengers in each class when there are various tariffs on a route. © Macroscopic Models : Demand is a function of time Factors that affect the number of passengers are not taken into considerationo Macroscopic models are used to estimate the development level of air transportation in a certain country or region Estimate o The number of passengers o The number of airplane operations o The number of passenger kilometers © Microscopic models estimate » Demand between two cities © The passenger traffic at an airport e The number of passengers along a specific route e The number of passengers in each classMotivation for Leisure Travel Given the above discussion, leisure travel motivations need to be understood in terms of its meaning and limits. MeIntosh (197) categorized motivation fortravel into the following four catezories of — 1. Physical motivators consisting of rest and relaxation, sports participation, beach recreation etc. 2. Cultural motivators indicating to the desire for knowledge of other countries and cultures, including music, art, religion etc. 3. Interpersonal motivators consisting of the need to meet new people, friends and relatives, to escape from the routine, family or neighbors etc. 4. Status and prestige motivators indicating the desire for recognition and attention. Cohen (1979) proposes a typology emphasizing the manner in which tourists relate to environments and thus explaining their motivations to travel, The main assumption is that tourists travel as they believe that they will find valuable experience by doing so. Airline Vs Market Vs National Elasticities. Some of the studies eupported the concept that the demand slasticty faced by an individual ailina is higher than that faced by the whole market For example, Our, Zhang, and Zhang (1993) estimated firmespecifie tlasticties in the USS. and estimated vakies ranging from -1.94 to -9:34, while studies estimating market or route elasticities ranged from -06 to -16.In contrast, Alperevich and Machnes (1994) and Njegovan (2008) used national-level measures of ai travel in lerael and the UK respectively and produced even lower elasticity values (-0.27 and -0.7, respectively). Income Elasticities. Many of the studies also included income as an explanatory variable of air travel demand. This will isolate the effects of a shift along the demand curve (caused by a change in air travel price) from the effect ofa shift of the whole demand curve (caused by a change in incomes or GDP). The studies including the income term all produced positive income elasticities, as would be expected (airtravel increases as incomes increase). Virtually all of these studies estimated income elasticities above ‘one, generaly between +1 and +2. This indicates air travel increases ata higher rate than income growth. This has important implications for polices seeking to manage air travel demand by raising the price of travel* Population. Population has a drect effect on the size of amarket and may cause a bias in the estimates ifomitted. For example, alarge increase in traffic ‘may reflect a sudden boom in population rather than other effects. Population was tested in all model ‘specifications but the best results tended to be al the city pair level, soit is only included in the US domestic regression results Route Distance (Trip Length). The use of route distance is based on its abiliy to reflect the value of travel time savings and availabilty of substitutes. As distance increases, the viabiity of other transport ‘modes as a substitute decreases. The use of route distance as an instrumental variable in 2SLS requires that distance be uncorrelated with traffic This is most likely in the domestic US market. + Substitute Goods. The inclusion of a substitute travel rice variable wes tested on a subsetof routes and ‘was found to increase price elasticities. Estimates thatexclude a meaningful substitute in the regression ‘model will produce more inelastic estimates than correctly specified model would produce. Route substitutes can be defined as a different airport ‘serving the same catchment area (e.g, Chicago- ‘Hare or Chicago-Midway) or a different destination ‘setving the same purpose (eg. Las Vegas or Reno).+ Real Exchange Rates.” In theory, es the foreign county bocomes more expensive (inexpensive), leisure travellers will travel to the foreign country less (more). However, the econometric research \vas unable to obtain robust estimates using this variable, possibly cue to difficulties in obtaining an accurate measure of the variable. Therefore, real exchange rates were excluded from the final model specifications. + Time Variables. The use of several diferent forms ‘of fime veriables was explored, but only quarterly (ceasonal) time dummy variables were found to increase the explanatory power of the model. This suggests thet both travel prices and demand are inherently seasonal (atleast on a quarterly basis). + Route Dummies. These dummy variates were found in many cases to increase the explanatory power of the model, suggesting that some other coute-specifc ‘aciore aro important for demand (e.g. whether or notnonestop service is available, whether there are competing carriers aperating on narestop routes, ‘The review of previoue research found concistont results ‘showing that ai Lavel price elasticities on chort-haul route wore higher than on long-haul routes. The largely reflects the greater opportunty forinter-odal ubstitution ‘on short-haul routes (e.g travellers can switch to ral or ‘car in reeponee to air travel price incroaces). While the ‘goographical breakdowns outlined in the next cection ‘capture como variation by length of haul, hore ie etl ‘considerable variaton within each market. In particular, vary shortshaul flights (approximately less than 1 hour {ight time) are subject to greater competition from other modes. On this basis an elasticity multiplier of 1.1 is estimated and used to adjust air travel price elasticities for short- haul markets, This does not apply to the analysis of trans Atlantic of trans Pacific markets, which are entirely lang- haul with virtually no opportunity for modal substitution.+ Business Versus Leisure Passengers. In general, all else being equal, business travellers are less sensitive to travel price changes (less elastic) than leisure travellers. Intuitively, this result is plausible; business travellers generally have less flexibility to postpone or cancel their travel than leisure travellers. Nevertheless, the studies do snow that even business travel will decine in the face of price increases, albeit nottto the same extent es leisure travel ‘Short-Haul Versus Lona-Haul Travel. Another consistent result was that zir travel price elasticities ‘on short-haul routes were generally higher than on long-haul routes. In part, this reflects the opportunity for inter-modal substitution on short-haul routes (eg. travellers can switch to rail or car in response to air travel price increases). “The total cost of travel (Le. including transport cost as well as accommodation costs): air travel is ‘ly an intermediate commodity, and demand for air travel results from the demand for a more Complex product which is the whole package: air travel is not something to be enjoyed for its own sake, For example, for counties which are areas of departure (Northen Europe, UK..), the cost of ‘accommodation abroad and more generally the cost of living in destination counties is @ major ‘determinant of rave! Behaviour. Household consumption in leisure and leisure sir travel: associated withthe elasticity ofthe total Cost of travel, this consumption level will provide useful information on the potential demand for leisure air raved Today, leisure aciviies represent a larger part of people's life than they used to (only 20% of one's. life is dedicated to work today, while t was 70% a century ago). and the ways in which people spend thelr frae time are evolving fast. Lelsure arr travel ls part of that free time, and is competing ‘with other activiias. The evolution of the ways in which people spend thelr free time Is therefore ‘worthy of study. ‘The holiday departure rates by socle-professional category: The penetration rate of ar Wansport By soco-proessional category couk! evoWe ithe fue according lo the behaviour evauton inthe rolday context Past trends show thet some categories (mtermedite, farmers) are going on more roksays tan before. The evolution ofthese tends i therefore important to estate. ‘The analysis of traffic in terms of distance travelled: need to analyee the market share of short ‘and mediums haul fights favoured by the feeling of ime scarcity and the fact that time isa part of the cost equation for travelers> The increase in the market share of flights for VFR purpose due to: The lower cost of VFR travel since VFR travellers generally face lower accommodation costs than people travelling for other leisure purposes -The number of retired people: the number of people of 85 years old and over wil increase over all the regions of the world. In France, it will represent 1 person in 3 compared to 1 person in 5 currently. it follons that in 2025, retired people will represent a significant share of the potential air travellers as much for holidays as for Visiting Friends and Relatives (VFR) purposes. ‘Tho evolution of holiday departure rates shows that people above 66 are going moro and moro on holiday, until they reach approximately the age of 70 (then the departure rate crops). = The number of emigrated people: a continuation or an emphasis of the current tendency for people to migrate to and from Europe as well as inside Europe, will significantly influence the ‘demand lovel for air travel for VER purposes by 2025. The evolution of student exchanges, of job intemationalization inside large frms should therefore be examined on a long term forecast. > The opposition of environmental issuesiright to travel’ People mostly consider air travel as a fight and are not fully ready to travel less only by ecological conscience. in this case behaviour ‘would significantly change only if spurred on by governments or politicians (legisiations) However. the ecological conscience may be more marked for the young generation that will be adult in 2028. Although such future behaviour can be dificult to forecast nowadays. we can guess that it ‘could have a non negligible impact on future alr travel demand features.