M I T I n t e r n a t i o n a l C e n t e r f o r A i r T r a n s p o r t a t i o n Analysis of Interaction between Air Transportation and Economic Activity Masha Ishutkina and Prof. John Hansman November 6 th, 2008
Passenger and GDP Trends Aggregated by Region Aggregate data exhibit correlation between GDP and Air Passengers. 11/14/2008, 2
Feedback Relationship between Air Transportation and an Economy Direct / Indirect / Induced employment impact Economy Enabling Impact (access to markets/people/capital) Travel/Freight Need Demand Supply Pricing & Schedule Infrastructure Capability Regulatory Framework Capital Revenue/Profitability Airlines Air Transportation System Vehicle Capability Figure source: The Impact of Information Technologies on Air Transportation by R. John Hansman, 2005. 11/14/2008, 3
Describing the Enabling Impact Change Factors Enabled Flows are defined as flows which directly impact the Economic Attributes. Economic Attributes consist of: Factor Conditions: land, labor, capital, institutions, infrastructure Demand Conditions Firm Strategy Interaction Potential is determined by inherent Economic Attributes of the Economy and the Rest of the World. 11/14/2008, 4
Research Approach Identify Enabled Flows Goods Investment Knowledge Services Labor Remittances Tourism Describe how Enabled Flows affect Economic Attributes Factor Conditions: land, labor, capital, institutions, infrastructure Demand Conditions Firm Strategy Identify which factors may stimulate or the suppress the development of Air Transportation System. 11/14/2008, 5
Data Analysis We use comparative country-level data analysis to identify different behaviors. Original Dataset: 139 countries for years 1975-2005. Data Sources ICAO Air Transportation Passenger data The air transport data represent the total (international and domestic) scheduled passenger traffic carried by the air carriers registered in a country. The World Bank GDP data Data Limitations Discontinuation or addition of a particular carrier may cause significant changes in the data but not in the actual traffic In liberalized environments airlines not registered in a particular country may carry local traffic. Data for small countries may reflect the financial and capacity issues faced by a single carrier. 11/14/2008, 6
Explore Variability in the Growth Patterns United States Air Passengers Millions 800 600 400 200 0 12 10 8 6 4 2 0 Trillions GDP (constant 2000 US$) Correlation Coefficient: 0.98 1975 1980 1985 1990 1995 2000 2005 Air Passengers GDP (constant 2000 US$) Use temporal data to determine the correlation between passenger and GDP. Use Air Passengers and GDP growth patterns to identify different behaviors. 11/14/2008, 7
Stimulating and Suppressing Growth Behaviors Economic Growth Declining Air Usage GDP Growth Growth Air Passenger Growth Decline Economic Decline Increasing Air Usage Suppressing Factors => Negative Passenger Growth Rates Stimulating Factors => Positive Passenger Growth Rates 11/14/2008, 8
Yearly Growth Rates for 139 Growth Countries 0.20 0.15 0.10 GDP Growth 0.05 0.00-0.50-0.40-0.30-0.20-0.10 0.00 0.10 0.20 0.30 0.40 0.50-0.05-0.10-0.15-0.20 AT Growth 11/14/2008, 9
Four Growth Behaviors: Number of Occurrences 21% of occurrences GDP Growth 62% of occurrences Air Passenger Growth 8% of occurrences 10% of occurrences Suppressing Factors => Negative Passenger Growth Rates Stimulating Factors => Positive Passenger Growth Rates 11/14/2008, 10
List of 28 Case Studies Japan Indonesia Switzerland Costa Rica Algeria Libya Nigeria GDP Growth China Lao Vietnam Ireland Turkey Slovakia Chile Qatar United Arab Emirates United States of America India South Africa Bulgaria Argentina Peru Zimbabwe Air Passenger Growth United Arab Emirates Large changes in year-on-year growth rates: Belgium, Russian Federation, Ecuador, Kuwait, Madagascar 11/14/2008, 11
Example China Air Passengers Millions 160 2.0 140 120 1.6 100 1.2 80 60 0.8 40 20 0.4 0 0.0 1975 1980 1985 1990 1995 2000 2005 Trillions GDP (constant 2000 US$) Air Passengers GDP (constant 2000 US$) 1978+: economic liberalization reforms, supporting and aviation infrastructure investment 1987: Civil Aviation Administration of China separated from airline management 1997: partial domestic deregulation 11/14/2008, 12
Identified Reasons behind Changes in the Growth Rates GDP Growth Domestic deregulation Liberalization Privatization New airport construction Airport capacity investment Secondary airports incentivization Low-cost carrier development National airlines Economic liberalization reforms Supporting infrastructure investment Institutional and political reforms Exchange rates Globalization of trade in manufacturing and services Change in management practices Trade agreements Growth Air Passenger Growth 11/14/2008, 13
Example Algeria Air Passengers Millions 5.0 4.0 3.0 2.0 1.0 0.0 1975 1980 1985 1990 1995 2000 2005 80 70 60 50 40 30 20 10 0 Billions GDP (constant 2000 US$) Air Passengers GDP (constant 2000 US$) 1992-2002: civil unrest marked by violence and terrorism 1994-1999: foreign airlines services suspension 1990s: macroeconomic stabilization policies: the hydrocarbons sector accounts for nearly 30% of GDP, and over 97% of export earnings 11/14/2008, 14
Identified Reasons behind Changes in the Growth Rates Airline Bankruptcy Airline Sale to Other Country Airline Strategy: merges Demand Shocks: SARS, accidents Political Instability Airline Ban Services Suspension Development of other transport modes GDP Growth Air Passenger Growth 11/14/2008, 15
Example Zimbabwe Air Passengers Millions 1.0 0.8 0.6 0.4 0.2 0.0 10 8 6 4 2 0 Billions GDP (constant 2000 US$) 1975 1980 1985 1990 1995 2000 2005 Air Passengers GDP (constant 2000 US$) 1998: deteriorating political climate 2000: economic reforms leading to hyperinflation, fuel shortages 11/14/2008, 16
Identified Reasons behind Changes in the Growth Rates GDP Growth Air Passenger Growth Economic Downturn Political Instability War Political/Economic Sanctions 11/14/2008, 17
Example United Arab Emirates Air Passengers Millions 20 16 12 8 4 0 1975 1980 1985 1990 1995 2000 2005 120 100 80 60 40 20 0 Billions GDP (constant 2000 US$) Air Passengers GDP (constant 2000 US$) Early 1980s: government policy to grow the air transportation sector. High air passenger growth rate sustained since then. 11/14/2008, 18
Identified Reasons behind Changes in the Growth Rates GDP Growth Air Passenger Growth Government Strategy 11/14/2008, 19
Further Work Change Factors Perform detailed case study analysis to describe the enabling mechanisms. Describe how Economic Attributes affect the Interaction Potential and the resulting Air Transportation Demand. Develop a quantitative model describing the evolution of a particular mechanism in an economy. 11/14/2008, 20