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Direct air transport and demand interaction: A vector error-correction model approach

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  • Koo, Tay T.R.
  • Tan, David T.
  • Duval, David Timothy

Abstract

The goal of this paper is to impose a cause–effect structure into the relation between tourism demand and air transport capacity. Specifically, we apply a vector error-correction model to assess if, and to what extent, capacity or passenger demand are first-movers that return to long-run equilibrium following short-run deviations. Using data on international aviation between Australia and our test cases of China and Japan, we find that demand on the Japan–Australia market corrects for short-run deviations from the long-run equilibrium quicker than the China–Australia market. Reasons for such variation in adjustment speeds are discussed and we show that the results are robust to the phenomenon of airlines pre-empting demand when setting capacity.

Suggested Citation

  • Koo, Tay T.R. & Tan, David T. & Duval, David Timothy, 2013. "Direct air transport and demand interaction: A vector error-correction model approach," Journal of Air Transport Management, Elsevier, vol. 28(C), pages 14-19.
    • Handle: RePEc:eee:jaitra:v:28:y:2013:i:c:p:14-19
    DOI: 10.1016/j.jairtraman.2012.12.005
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    Cited by:

    1. Xiaowen Fu & Kan Wai Hong Tsui & Breno Sampaio & David Tan, 2021. "Do airport activities affect regional economies? Regional analysis of New Zealand’s airport system," Regional Studies, Taylor & Francis Journals, vol. 55(4), pages 707-722, April.
    2. Tay T. R. Koo & David Tan & David Timothy Duval, 2018. "The Effect of Levels of Air Service Availability on Inbound tourism demand from Asia to Australia," Advances in Airline Economics, in: Airline Economics in Asia, volume 7, pages 145-167, Emerald Group Publishing Limited.
    3. Koo, Tay T.R. & Lim, Christine & Dobruszkes, Frédéric, 2017. "Causality in direct air services and tourism demand," Annals of Tourism Research, Elsevier, vol. 67(C), pages 67-77.
    4. Tascón, Diana C. & Díaz Olariaga, Oscar, 2021. "Air traffic forecast and its impact on runway capacity. A System Dynamics approach," Journal of Air Transport Management, Elsevier, vol. 90(C).
    5. Wai Hong Kan Tsui & Faruk Balli & David Tat Wei Tan & Oscar Lau & Mudassar Hasan, 2018. "New Zealand business tourism," Tourism Economics, , vol. 24(4), pages 386-417, June.
    6. 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.

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