The asymmetric effects of income and fuel price on air transport demand |
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Affiliation: | 3. Transport Studies Unit, University of Oxford, Oxford OX1 3QY, UK;1. Department of Agribusiness and Applied Economics, North Dakota State University, Fargo, ND 58108, USA;2. Department of Accounting, Finance and Information Systems, North Dakota State University, Fargo, ND 58108, USA;1. Charlton College of Business, University of Massachusetts, Dartmouth, United States;2. School of Business IT and Logistics, RMIT University, Australia;3. School of Business, University of San Diego, 5998 Alcala Park, Coronado 108, San Diego, CA 92110, United States |
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Abstract: | Forecasts of passenger demand are an important parameter for aviation planners. Air transport demand models typically assume a perfectly reversible impact of the demand drivers. However, there are reasons to believe that the impacts of some of the demand drivers such as fuel price or income on air transport demand may not be perfectly reversible. Two types of imperfect reversibility, namely asymmetry and hysteresis, are possible. Asymmetry refers to the differences in the demand impacts of a rising price or income from that of a falling price or income. Hysteresis refers to the dependence of the impacts of changing price or income on previous history, especially on previous maximum price or income. We use US time series data and decompose each of fuel price and income into three component series to develop an econometric model for air transport demand that is capable of capturing the potential imperfectly reversible relationships and test for the presence or absence of reversibility. We find statistical evidence of asymmetry and hysteresis – for both, prices and income – in air transport demand. Implications for policy and practice are then discussed. |
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Keywords: | Air transport demand Imperfect reversibility Asymmetric response Hysteresis Econometric modelling |
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