Abstract

http://ssrn.com/abstract=1899128
 
 

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Air Transport Capacity and Tourism Demand Interaction: A Vector Error Correction Model Approach


Tay Koo


School of Aviation, University of New South Wales

David Tan


School of Finance, Actuarial Studies, and Applied Statistics, Australian National University

David Timothy Duval


Faculty of Business and Economics, University of Winnipeg; School of Aviation, University of New South Wales; School of Business, University of Otago

July 31, 2011


Abstract:     
The co-movement of air transport capacity and tourism demand are well-recognised. However, there exists a gap in understanding the relation between air transport capacity and demand such that the causal nature of these variables is rarely examined. 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 (VECM) to help assess whether, and to what extent, capacity or passenger demand are first-movers that return long-run equilibrium following an event that punctuates the established equilibrium. Using data on international aviation between Australia and our test cases of China and Japan, we find that demand on Japan-Australia market correct for short-run deviations from the long-run equilibrium quicker than in 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.

Number of Pages in PDF File: 21

Keywords: market equilibrium, vector error correction, air transport capacity, airlines, tourism, aviation, air transport

JEL Classification: C32, C53, L93

working papers series





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Date posted: August 2, 2011 ; Last revised: August 29, 2011

Suggested Citation

Koo, Tay and Tan , David and Duval, David Timothy, Air Transport Capacity and Tourism Demand Interaction: A Vector Error Correction Model Approach (July 31, 2011). Available at SSRN: http://ssrn.com/abstract=1899128 or http://dx.doi.org/10.2139/ssrn.1899128

Contact Information

Tay T.R. Koo (Contact Author)
School of Aviation, University of New South Wales ( email )
Sydney, NSW 2052
Australia
David Tan
School of Finance, Actuarial Studies, and Applied Statistics, Australian National University ( email )
Canberra, Australian Capital Territory 0200
Australia
HOME PAGE: http://cbe.anu.edu.au/staff/info.asp?Surname=Tan&Firstname=David
David Timothy Duval
Faculty of Business and Economics, University of Winnipeg ( email )
Winnipeg, Manitoba R3B 2E9
United States
School of Aviation, University of New South Wales ( email )
Sydney, NSW 2052
Australia
School of Business, University of Otago ( email )
P.O. Box 56
Dunedin, Otago
New Zealand
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