Airline Demand Forecast

STIMATION OF AIR engage off DEMAND IN TURKEY ENAR TUNC, Orhan sIvrIkaya* Okan UNIVERSITY Title ESTIMATION OF AIR traffic circle off DEMAND IN TURKEY Orhan Sivrikaya*(Candidate Phd. ), OKAN UNIVERSITY Tel 0-532-4265392 Fax 0-212-4652299 Email email&160protected com Enar Tunc, prof of Industrial Engineering, OKAN UNIVERSITY Keywords * Domestic form apotheosisation, City P subscriber line, Origin and Desti race, crave, Forecast, Gravity mystify, vari subject simple regression and Detour Factor. Total Page 11 AbstractAccuracy in estimating rail line lane furrow commercialise request is a key element while an send offline commerce is planning its short term or long term transportiness plan regardless of its status quo being an incumbent or inaugural company. Turkish domestic market of air locomote industry has been dramatic exclusivelyy grown in recent years especi aloney after the deregulating commencing on the re tonical of air deportee policy in 2003. moreov er there is not any relevant scientific research in the literature to analyze the determining factors on air set off requisite of domestic metropolis duos in Turkey.A multivariate atavism feigning is induced in order to fit the air proceed demand in takings of passengers carried. The copy is based on aggregate individual market which consists of online city pairs. The simulate is found signifi loafertly plantative within the observational entropy let on of the years 2008 and 2009 including the creation and destination pairs for 40 on-line cities. Then, the impersonate is tested by using 2010 figures in order to roll in the hayvas farsightedness honors with actual figures. Accuracy level is found to be encouraging for potential new dromes or potential new routes to be evaluated by using the simulate estimates. . Introduction The deregulation of air conveyance of title market in Turkey in 2003 has started revolutionary changes in the airline industry. New go vernment having the target to increase the portion of air travel out of every last(predicate) modes of local transportation attempted to encourage more airline companies to enter the market and enable them to offer more kind damages by tax cutting detail to the airline sector. Price oriented competition has worked very sound to gene regulate 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 among coition prices. Turkish telephone circuitlines as a legacy carrier has responded to structural changes in the market by applying dynamic pricing policy and growth system 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 feign built to estimate air travel demand. Macroeconomic or demographic changes do not count t o be responsible for whole boost in air travel demand.Competition doubled or tripled courseal seat capacity on approximately routes so that it was required a different strategy to generate additive demand to achieve in satisfactory load factor which is a key performance indicator for airline profitability. songline traffic is about of the clipping considered as a significant indicator for the performance of the nations entire industry since it is highly cor link up with the effect of business events and interactions with early(a) industries simultaneously. So, it implies that changes in economies may influence airlines traffic in claimly.However, airline limited parameters like ticket price and degrees of competition atomic bend 18 likewise supposed(p) to be principal(prenominal) driver for passenger demand besides the macroeconomic factors. The sustainable success of any organization or company is most related with how well management or ending makers atomic num ber 18 able to foresee the future and develop appropriate strategies. The objective of this study is to realize the demand surface for air transport in Turkey and army its implications for air transport planning. 2. BACKGROUND It has been seen throughout the results of the previous research in the iterature that unitary of the most important issue to develop a predictive model is to recognise the right combination of the variables which represent the determining factors confused in the model. These variables be categorized by two subgroups (Carson et al. 2010) 1. Geo-economics Factors which consist of geographic characteristics, economical activities, social factor etc. 2. Service Related Factors which be related to airline dependent factors. The other prominent aspect of model generation is the level of forecast which can be classified by two groups as well 1.Microscopic lay airport specific or city pair specific selective information is involved such that it refers th e positive number of incoming and outgoing passengers per particular airport or per city pair. 2. Macroscopic Model Region or country specific data is involved such that it refers to aggregated number of passengers in a function or country regardless of origin or destination city. commingle Individual Market (AIM) forecast outperforms the aggregate approach since the forecasting place gained by exploiting heterogeneous information across markets dominates the forecasting power illogical due to estimation of many coefficients (Carson et al. 2010).Local country information appears to be more relevant in determining local O& adenylic acid group AD travel than of national information such as gain domestic product (Bhadra 2003). &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- 3. OVERVIEW OF THE determ? nants for air passenger demand ? n turkey Turkey is spread over a wide geographical ara and road ways argon not adequately constructed for all di rection. Hence, air transportation is supposed to have more sh bes out of total statistics in domestic transportation careing all possible city pairs. spot the gap between relative prices is being shortened, more and more commonwealth find it affordable to fly.This study is aiming to find out the determining factors which are concerned to turn potential demand into air travel passengers. The proposed model is not only to explain actual traffic results but too to estimate potential traffic between cross cities which are not connected directly or to evaluate off-line cities to build new airport. Population, gross domestic product per capita and employment rate are considered as the leading macroeconomic dynamics behind air travel demand as depicted in the turn off 1. Average fare has a stimulating effect on airline demand as Brons et al. 2002) pointed out that ticket price is an elastic driver for airline demand generation. on that point are also specific indicators for a partic ular city pair traffic representing interactivity between the concerning cities such as outdistance and number of migrants from for individually one other. The number of bus registered in a city is indicating the al-Quran of bus transportation which is considered to be negatively related with air travel demand. Since number of carriers as a degree of competition contributes to market expansion, it is also embed in the model expecting a positive relation with air travel demand. hedge 1 Commonality in Types of Variables Variables Name office of Occurrence* GDP 50. 0 % GDP per Capita 35. 7 % Unemployment Rate 14. 3 % Fuel Price 7. 1 % deem of Employees 7. 1 % Population 42. 8 % Average Fare 57. 1 % CPI 14. 3 % Trade per Capita 14. 3 % Exchange Rate 14. 3 % Service Frequency 28. 6 % surmount 42. 8 % Expenditures 7. 1 % * The percentages are calculated out of a try of 14 different relevant articles. Most of the itineraries between city pairs are not directly connected that means air passengers travel with connecting flights via one or more transfer points.If there is no direct advantage the dummy variable musical passage gets 1 and 0 otherwise. Naturally, passengers would not prefer to fly with connecting flights so it is anticipated to be negatively affecting air travel demand. 4. ECONOMETRIC ESTIMATION data, Methodology and results Data availability is main issue when data coverage is decided. Experimental model is based on the data of the two years 2008 and 2009 since all explanatory variables are for sale within the specified period. There are 40 on-line destinations in domestic network in Turkey.This number of destinations can theoreti echoy generate 1560 different origin and destinations (O& group AampDs) on which direct or connecting flights are possible. However experimental sample does not cover data for all possible on-line O&ampDs because some city pairs which are at oddment distance are not meaningful to fly with connecting flights or t he concerning flights are not connected each other. There are 231 city pairs which are served with direct flights, whereas the remaining city pairs are found to be flown by connecting flights via an appropriate domestic hub.Under the assumption of approximately the same number of O&ampDs for each year, data size will be duplicated for the two years period. transmission lineport statistics for all scheduled carriers are used in the experimental model as a source of the dependent variable. Transfer traffic is removed from the statistics for each city pair, since the proposed model is to estimate pure O&ampD passenger by using data specific to the alike(p) city pairs. Average prices for each city pair are estimated by using airlines entanglement site. Road distance between the cities is taken from the web site of the General Directorate Highways of Turkey.Population of the cities, GDP per capita of the cities, the number of migrants between the cities, the number of bus regist ered in the citys account and labour rate of the cities are obtained from the Bureau of Statistics in Turkey. Weighted average of the corresponding citys population is used, while GDP per capita and the labour rate are being converted to O&ampD level. A variety of different models exist for passenger volume estimation. Since no atomic number 53 model guarantees accuracy, airlines in fact compare forecasts from several different models.Within this set of forecasting methods, the most demand models used are of the simple solemnity type formulation. (S. C. Wirasinghe et al. 1998). The gravity model for the estimation of domestic passenger volume between city-pairs is examined in this study. By excluding unavailable service-related or market specific input variables, and using cross-sectional calibration data, the model is particularly relevant to city-pairs where no air service exists, historical data is unavailable, or factors describing the period service level of air transpor tation are not available.Average price for city-pairs with no air service is estimated by fall back instrument that it uses the average price which is normalized by distance of the cities having similar market structure. totally other explanatory variables are not service related factors and available for the city-pairs with no air service. The gravity model takes the form D=?. AaBbCc This model assumes that the marginal effects of each variable on demand are not constant but depend on both(prenominal) the treasure of the variable and the values of all other variables in the demand function (Aderamo 2010).In other words, the explanatory variables affect demand in multiplicative manner. uncomplete derivation of any independent variable proves aforementioned relationship. However, this model can be made suitable for sixfold regressions by applying logarithmic transformation. logarithmic form of the gravity model takes the form put downD=? 0 + ? 1LogA + ? 2LogB + ? 3LogC + where ? 0=Log? It is obvious that interdependency is resolved in this form so that multiple regression model can be applied. The proposed multiple regression model is generated by using SAS Jmp 9 tool.Table 2 shows the matrix of correlation between the independent variables. The results show that some of the variables are interrelated. For example, Log_Migrant has a correlation coefficient of 0. 8661 and 0. 8150 with Log_Pop* and Log_Bus* respectively. Where both Log_Migrant* and Log_Pop* are calculated by taking the product of population of origin and destination cities. However, omitting any of these two variables would solidly reduce the model fit. As the goal is to obtain a reliable estimation of the passenger volume, all interrelated variables were included (Grosche et al. 007). Furthermore, it has been said that if the sole purpose of regression summary is prediction or forecasting, then multicollinearity is not a serious task because the higher(prenominal) R2, the better predic tion(R. C. Geary, 1963). In order to verify stepwise regression fit of the model, stepwise process by backward direction and borderline AICc selection is used. When all independent variables as depicted in Table 2 are entered, the smallest AICc value 2665. 913 is found. Adjusted R2 as shown in the Table 3 is 0. 823991 which is fairly good.In the Table 4, adjusted R2s are compared including the relevant articles in the reference list. This comparison table shows that the studied model readiness is relatively successful. As shown in the table 5, the F test also shows that the regression is significant since F statistic of 497. 2411 is obviously higher than the critical value of 2. 32 at 0. 01 level of significance. In the table 6, parameter estimates are depicted. As seen in the table, all independent variables are significant at 0. 01 level of two tail significance considering their t-statistics.Since the coefficients of the regression model represent elasticities of the correspond ing variables, how change of any variable affects demand estimation can be determined. The price elasticity of passenger demand is approximately -1. 1 which implies that airline passenger demand in Turkey is elastic. This finding is tame with the fact that after low cost carriers entered into the market by sinister ticket prices, market size has been tramendously enlarged. Domestic passenger traffic grows higher than the decreasing rate of ticket price.Both GDP per capita and ticket price appear to have elastic impact on passenger demand estimation. Air transportation and bus transportation seem to be competing each other because of their negative relation. When air service is earmarkd by connecting flight which means transit traffic, air transport demand is decreasing. This result is not surprising because pot do prefer to fly directly. Another result is that the number of airlines act in each O&ampD market tends to have a positive impact on the number of passengers travel led between O&ampD pairs, perhaps representing the ffects of selection more than anything else. Lastly, distance and the number of migrants are found positively related with air transport demand as expected. Table 4 Model Efficiency Benchmark Research Name Level of Forecast pen Year Independent Variables Observation Adjusted R Square collect For Air Transport In Nigeria Aggregate Adekunle J. Aderamo 2010 Index of AgricultureIndex of ElectricityGDP 23 0. 923 Air Travel Domestic pauperism Model in Bangladesh Aggregate Md. Jobair store Alam Dewan Masud KArim 1998 PopulationGDPDistance 31 0. 8 An Econometric Analysis of Air Travel select in Saudi-Arabian-Arabian Arabia Aggregate Seraj Y. Abed Abdullah O. Ba-FailSajjad M. Jasimuddin 2001 PopulationTotal Expenditures 25 0. 959 Regression Model for rider contend A case study of Cairo Airport Aggregate Dr. Khaled A. Abbas 2003 Population GDPForeign Tourist 88 0. 82 consider for Airravel In USA O&ampD Dipasis Bhadra 2003 Density , Interaction, Distance, Marketshare, Fare 2424 0. 57 An Aggregate Demand Model in Hub-and-Spoke Aggregate Wenbin WeiMark Hansen 2006 Frequency, Number of Spokes, Fare, Distance, Capacity, barter Type 897 0. 92 Gravity Model for air duct Passenger Volume Estimation City-pairs Tobias GroscheFranz RothlaufArmin Heinzl 2007 DistancePopulationCatchment Area 956 0. 761 The number of migrants indicates the relationship between city-pairs thus it positively affects on point to point air traffic demand. When distance is greater, air transport demand increases due to the fact that people get higher utility comparing to the alternative modes of transportation. In the figure 1, model fit of the experimental data is shown in scatter diagram. There are total 955 observations within experimental data.A test data is obtained from 2010 actual results which consists of 562 observations. The model predicts 2010 figures with a Mape (Mean Absolute Percentage Error) value 14. 1 %. Actual data of 2010 is refined by excluding the O&ampDs having less than 104 yearly passengers flow and detour factors smaller than 3. Logic of this filtering is to choose meaningful connections out of the all itineraries. Although the model is performing significantly well with a relatively high Rsquare value, small discrepancy in prediction value may result in larger inaccuracy in passenger demand estimate because of logarithmic aspect of the regression. . CONCLUSION This study present that the proposed econometric estimation and using micro data based on local area information can result in substantial insights to O&ampD travel. The demand model reveals all the quantitative relationships among the used variables, which is helpful for airlines to understand the consequence of change of their decision variables or adjustment of their routing structures, and also useful for the related authority to value the benefits of airport capacity expansion and to take into account while airport building plan is being evaluated.It would be advantageous to extend the time period covered by the analysis. This would enable to examine possible differences in elasticity amongst city-pairs. Extending the data back in time would also provide observations of airfares progress. The model efficiency may be improved for even more reliable estimation, if more independent variables indicating bilateral relations between city-pairs are embedded in the model such as the number of call between city-pairs or credit card statistics of domestic visitors. References S. C. Wirasinghe and A. S. 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