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Air transport capacity and tourism demand: A panel cointegration approach with cross-sectionally augmented autoregressive distributed lag (CS-ARDL) model

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  • Rockie U Kei Kuok
  • Tay T.R. Koo
  • Christine Lim

Abstract

This research aims to quantify the effect of air transport capacity on tourism demand by examining their long-term (cointegrating) relationship, accounting for cross-sectional dependence and endogeneity. Panel time series data from 2008Q1 to 2019Q4 for international tourist arrivals from 16 main origins to six Australian states are investigated. The study finds 1% increase in Available-Seat-Kilometers, seat capacity, or flight frequency can result in 0.4%–0.7% increase in tourist arrivals to Australia, adding to the body of evidence that shows a non-negligible aviation-led generative effect on tourism demand. The study finds ignoring cross-sectional dependence can result in significantly different, and potentially incorrect, coefficient estimates. Although using pre-COVID data, the results are useful in highlighting the likely aviation supply—tourism demand relations under reasonably well-performing market conditions. For greater tourism demand, findings call for more liberal international air services agreements, and direct/indirect air route development subsidies with minimum commitment of several years.

Suggested Citation

  • Rockie U Kei Kuok & Tay T.R. Koo & Christine Lim, 2024. "Air transport capacity and tourism demand: A panel cointegration approach with cross-sectionally augmented autoregressive distributed lag (CS-ARDL) model," Tourism Economics, , vol. 30(3), pages 702-727, May.
    • Handle: RePEc:sae:toueco:v:30:y:2024:i:3:p:702-727
    DOI: 10.1177/13548166231178355
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