Maturity in the Passenger Airline Industry? Revisiting the Evidence and Addressing Maturity in Forecasting the Future Market for Air Travel



Maturity in the Passenger Airline Industry? Revisiting the Evidence and Addressing Maturity in Forecasting the Future Market for Air Travel

Authors

A Smyth, G Christodoulou, University of Westminster, UK

Description

Significant orders for new aircraft prompt questions about growth in the air transport market. This paper reviews evidence of market maturity with a view to developing tools capable of producing robust forecasts of market conditions.

Abstract

Recent announcements of significant orders for new aircraft by airlines along with plans for expansion of major hubs in the Arabian Gulf, suggest massive growth in the future market for air travel. Moreover, notwithstanding the depth of the global economic recession there appears to be an appetite in established air transport markets for gearing up to anticipated growth. Such announcements and plans prompt questions about the potential for growth in the market for air transport. While the literature is replete with references to market trends and analysis less common are detailed analyses of constraints on that market, including evidence of market maturity. It would appear prudent to investigate the propensity towards market maturity with a view to developing market projection tools that are capable of producing robust forecasts of future market conditions. This paper provides a critical review of the evidence of such conditions in the market and goes on to offer recommendations on methodological improvements to address the challenges posed by the requirement to produce reliable market forecasts.

Evidence pointing to market maturity is subject to high levels of uncertainty in the short to medium term. The evidence reviewed in this study also suggests that segments of market for air travel are exhibit very different dynamics in different countries.

Ultimately any demand model will be judged in large measure on its ability to represent as accurately as possible key drivers of consumer behaviour, including macro-economic, socio-economic, lifecycle and lifestyle, demographic, geopolitical and globalisation factors, supply side responses, including fares and airport and ATM capacity, and the behavioural effects of public policy intervention levers e.g. environmental taxes. In the short term we recommend, where market maturity is anticipated such an effect should be addressed through sensitivity analysis at market segment level. The research recommended that modelling is undertaken at the maximum level of market segmentation possible. Models estimated with a wide range of function types could be expected to yield projections with a greater element of behavioural sensitivity and able to represent a maturing market in a way more useful in policy testing. This would ultimately reduce reliance on sensitivity tests.

Publisher

Association for European Transport