Airline Demand Forecast

Topics: Regression analysis, Supply and demand, Airline Pages: 11 (3397 words) Published: November 17, 2012

ENAR TUNÇ, Orhan sİvrİkaya*

Orhan Sivrikaya*(Candidate Phd.), OKAN UNIVERSITY Tel: 0-532-4265392 Fax: [0-212-4652299] Email: Enar Tunç, Professor of Industrial Engineering, OKAN UNIVERSITY Keywords

* Domestic Air Transportation, City Pair, Origin and Destination, Demand, Forecast, Gravity Model, Multivariate Regression and Detour Factor.

Total Page: 11


Accuracy in estimating airline market demand is a key element while an airline is planning its short term or long term business plan regardless of its status quo being an incumbent or startup company. Turkish domestic market of air travel industry has been dramatically grown in recent years especially after the deregulation commencing on the renewal of air transportation policy in 2003. However there is not any relevant scientific research in the literature to analyze the determining factors on air travel demand of domestic city pairs in Turkey. A multivariate regression model is generated in order to fit the air travel demand in number of passengers carried. The model is based on aggregate individual market which consists of on-line city pairs. The model is found significantly representative within the experimental data out of the years 2008 and 2009 including the origin and destination pairs for 40 on-line cities. Then, the model is tested by using 2010 figures in order to compare prediction values with actual figures. Accuracy level is found to be encouraging for potential new airports or potential new routes to be evaluated by using the model estimates. 1.Introduction

The deregulation of air transportation market in Turkey in 2003 has started revolutionary changes in the airline industry. New government having the target to increase the portion of air travel out of all modes of local transportation attempted to encourage more airline companies to enter the market and enable them to offer more attractive prices by tax cutting specific to the airline sector. Price oriented competition has worked very well to generate significant airline passenger traffic. Low Cost Carriers have contributed to exercise a sustainable two digit growth by stealing passenger traffic from bus transportation as a result of shortening the gap between relative prices. Turkish Airlines as a legacy carrier has responded to structural changes in the market by applying dynamic pricing policy and growth strategy to benefit from economies of scale resulting in increase in productivity. Big changes in airline passenger traffic in Turkey create a challenge to testify any claiming model built to estimate air travel demand. Macroeconomic or demographic changes do not seem to be responsible for whole boost in air travel demand. Competition doubled or tripled available seat capacity on some routes so that it was required a different strategy to generate additional demand to achieve in satisfactory load factor which is a key performance indicator for airline profitability. Airline traffic is most of the time considered as a significant indicator for the performance of the nation’s entire industry since it is highly correlated with the number of business events and interactions with other industries simultaneously. So, it implies that changes in economies may influence airlines traffic indirectly. However, airline specific parameters like ticket price and degrees of competition are also supposed to be main driver for passenger demand besides the macroeconomic factors. The sustainable success of any organization or company is closely related with how well management or decision makers are able to foresee the future and develop appropriate strategies. The objective of this study is to examine the demand size for air transport in Turkey and show its implications for air transport planning.


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