Forecasting (Aggregate) Demand for U.S. Commercial Air Travel

29 Pages Posted: 10 May 2009 Last revised: 20 Feb 2014

See all articles by Richard T. Carson

Richard T. Carson

University of California, San Diego (UCSD) - Department of Economics

Tolga Cenesizoglu

HEC Montreal - Department of Finance

Roger Parker

Virtual Minds

Date Written: February 17, 2010

Abstract

We analyze whether it is better to forecast air travel demand using aggregate data at (say) a national level or whether one should aggregate forecasts derived for individual airports using airport-specific data. We compare the U.S. Federal Aviation Administration’s (FAA) practice of predicting the total number of passengers using macro economic variables with an equivalently specified AIM (aggregating individual markets) approach. The AIM approach outperforms the aggregate forecasting approach in terms of its out-of-sample air travel demand predictions for different forecast horizons. Variants of AIM, where we restrict the coefficient estimates of some explanatory variables to be the same across individual airports, generally dominate both the aggregate and the AIM approaches. The superior out-of-sample performance of these so-called quasi-AIM approaches depend on the trade-off between heterogeneity and estimation uncertainty. We argue that the quasi-AIM approaches efficiently exploit the heterogeneity across individual airports without suffering from as much estimation uncertainty as the AIM approach.

Suggested Citation

Carson, Richard T. and Cenesizoglu, Tolga and Parker, Roger, Forecasting (Aggregate) Demand for U.S. Commercial Air Travel (February 17, 2010). International Journal of Forecasting, Vol. 27, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=1401453 or http://dx.doi.org/10.2139/ssrn.1401453

Richard T. Carson

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
619-534-6319 (Phone)
619-534-7655 (Fax)

Tolga Cenesizoglu (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

HOME PAGE: http://www.hec.ca/en/profs/tolga.cenesizoglu.html

Roger Parker

Virtual Minds

Switzerland

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