Australian Outbound Holiday Travel Demand: Long-haul Versus Short-haul

Krishna Hamal Analysis and Forecasting

Paper presented at the Australian Tourism and Hospitality Research Conference Gold Coast, Queensland, Australia 11-14 February 1998

BTR Conference Paper 98.2

ISSN 1326-8309 ISBN 0 642 28504 7

Bureau of Tourism Research

GPO Box 1545 Canberra ACT 2601 AUSTRALIA Telephone: (02) 6213 7136; Facsimile: (02) 6213 6983 E-mail: hamalk@dist.gov.au

Preface
Outbound travel accounts for about 40 per cent of total international travel, which includes both short-term overseas arrivals and resident departures. In recent times, the outbound travel sector has expanded more rapidly than the domestic travel sector. The number of short-term resident departures has increased by an average of 4 per cent a year since 1991, from 2.1 million in 1991 to 2.7 million in 1996. Holiday travel dominates the outbound travel sector, accounting for 46 per cent of total short-term resident departures. The number of residents departing for holiday purposes increased by 5 per cent a year, from 0.5 million in 1974 to 1.3 million in 1996. During the same period, domestic holiday nights declined by 2.8 per cent suggesting possible substitution between outbound and domestic holiday travel. Relatively cheaper prices of outbound travel might have encouraged Australians to substitute overseas holiday destinations for domestic ones. Previous studies by Hamal (1996 and 1997) observed that substitution occurs between outbound and domestic holiday travel. However, the relationship was observed on an aggregate level, assuming that the magnitude of substitution between a domestic destination and an overseas destination remains the same whether the overseas destination is a long-haul or short-haul destination. In reality, this may not be true. A holiday traveller is more likely to substitute a short-haul rather than a long-haul overseas destination for a domestic destination. This is because prices of travel to short-haul overseas destinations are expected to be more competitive with domestic travel prices than would travel prices to long-haul overseas destinations. This paper examines substitution by outbound travellers to long-haul and short-haul overseas holiday destinations. In this study, the USA and UK are chosen as long-haul destinations, whereas New Zealand, Indonesia, Singapore and Fiji are selected as short-haul destinations. Econometric models were used to estimate and analyse the demand parameters of outbound travel. The models were estimated using annual historical data from 1974 to 1996. Data were obtained from the publications of the Australian Bureau of Statistics, the World Bank and the International Monetary Fund. The empirical results suggest a substitution between domestic and outbound holiday travel and that the magnitude and significance of the elasticity of substitution vary by travel distance to outbound destinations. Outbound travel is also observed to be influenced by population, real household disposable income and own price.

Keywords
outbound travel, outbound travel model, Australian outbound tourism

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Contents
Preface ....................................................................................... Keywords .................................................................................... 1. Introduction .............................................................................. 2. Outbound travel .......................................................................... 3. Holiday outbound travel demand models ............................................. 4. Data ....................................................................................... 5. Model estimation and results .......................................................... 6. Demand elasticities of outbound travel ............................................... 7. Conclusions .............................................................................. REFERENCES ............................................................................. APPENDIX A .............................................................................. i i 1 3 5 6 8 9 11 12 14

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1. Introduction
People travel for several reasons such as holiday, visiting friends and relatives (VFR), business, employment and sports, but holiday travel remains the dominant sector of the international travel market. According to travel literature, holiday travel to a destination is influenced by two major attributes: the attractiveness of that destination and travellers ability to travel to that destination in terms of situational constraints (Woodside and Lysonski 1989; Um and Crompton 1990 and 1992; Crompton and Ankomah 1993). Situational constraints are those associated with factors such as income, travel prices, time and health. Although these two attributes jointly influence the final choice of a destination (Um and Crompton 1990 and 1992; Hansen 1976; Woodside and Lysonski 1989), the latter is empirically observed to be more important than the former (Um and Crompton 1992). Among several factors associated with situational constraints, travel prices have been empirically observed to have a significant influence on travel demand (Hamal 1996 and 1997). Holiday travellers are expected to compare the prices of taking holidays in different destinations and thereby to choose those destinations which maximise their holiday utility. In other words, the choice of a destination is determined not only by the price of a holiday in that destination but also by the prices of a holiday in substitute destinations. Therefore, the prices of substitute destinations are very important in analysing travel demand, especially for the development of marketing strategies. In Australia, a substitution between domestic and outbound holiday travel is likely to occur because: Australia is a developed country with a high level of per capita real household disposable income. Therefore many Australians can afford to substitute overseas destinations for domestic destinations. Australia is a vast country where domestic travel to some destinations is more costly than overseas travel to destinations surrounding Australia. Australians appear to have a liking for travel in general, and overseas travel in particular. In recent decades, the prices of outbound holiday travel in real terms has declined by 0.7 per cent a year since 1974 and by 1.7 per cent a year in the last ten years, largely due to the development of aircraft technology and the liberalisation of international air routes. The fuel efficiency and carrying capacity of airlines have improved with the development of aircraft technology, while the liberalisation of international air routes in several countries including Australia has resulted in competitive airfares on international routes. This means that the price of overseas travel has relatively declined over the last ten years, and therefore more Australians can afford a holiday at overseas destinations, especially those surrounding Australia such as New Zealand, Indonesia, Fiji and Singapore.

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A substitution effect between outbound and domestic holiday travel in Australia has been empirically observed by Hamal (1996 and 1997). Figure 1 and Table 1 indicate that domestic holiday trips remained flat (zero growth) between 1979 and 1993 while the number of resident departures for holiday purposes during the same period increased by 4.2 per cent a year to 1.2 million in 1993. In fact, the number of resident departures for holiday purposes increased by 5 per cent a year since 1974, from 0.5 million in 1974 to 1.3 million in 1996 (Table 2). Domestic holiday trips could not be compared to outbound trips after 1993 due to a break in series in domestic trips data in 1994-95.

Figure 1: Domestic and outbound holiday travel, 1979 - 1993

200
Outbound trips

180 160 140 120 100 80 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Trips (1979=100)

Domestic trips

* Excludes domestic trips data after 1993 due to a break in series in 1994-95.

Table 1: Domestic and outbound holiday trips (thousands) Year Domestic trips 1979 18998 1980 20060 1981 20303 1982 20001 1983 20450 1984 21034 1985 19371 1986 19248 1987 20959 1988 20531 1989 20169 1990 20336 1991 20206 1992 18207 1993 18817 1994 19433*

Outbound trips 671 707 736 791 759 861 917 902 902 941 1119 1226 1151 1207 1160 1144

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1995 1996

21506* 21939*

1140 1263 4.2

Average annual growth rate (%): 1979 - 1993 0.0

* Break in data series

In Hamal (1996 and 1997), substitution between domestic and outbound travel in Australia was observed on an aggregate level assuming that the magnitude of substitution between a domestic destination and a overseas destination remains the same whether the overseas destination is a long-haul or short-haul. In reality, this may not be true. A holiday traveller is more likely to substitute a short-haul overseas destination for a domestic destination, because Table 2: Short-term resident departures by purpose of visit (thousands) Year Business Holiday VFR Other 1974 117 457 140 56 1975 117 557 176 62 1976 125 601 181 66 1977 133 584 188 66 1978 153 638 204 68 1979 168 671 246 91 1980 180 707 235 82 1981 189 736 226 65 1982 197 791 236 62 1983 196 759 237 62 1984 226 861 265 67 1985 238 917 288 69 1986 256 902 309 73 1987 289 902 333 99 1988 330 941 343 84 1989 386 1119 388 98 1990 404 1226 439 102 1991 396 1151 454 98 1992 442 1207 491 136 1993 476 1160 515 116 1994 531 1144 561 119 1995 612 1140 645 122 1996 657 1263 684 128 Average annual growth (%): 1974-1996 1974-1980 1981-1990 1991-1996 1974-1996 7.5 8.6 8.6 8.3 7.8 5.9 0.7 5.0 9.5 6.6 7.7 7.7 7.4 3.3 5.0 4.9 7.9 6.2 4.0 6.1

Total 770 912 974 971 1062 1176 1204 1217 1287 1253 1419 1512 1540 1622 1698 1990 2170 2099 2276 2267 2354 2519 2732

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the prices of short-haul overseas travel are expected to be directly more competitive with the prices of domestic travel than would be the prices of long-haul overseas travel. This paper examines the substitution behaviour of Australian travellers with respect to longhaul and short-haul overseas holiday destinations. Unlike Hamal (1996 and 1997), this study uses outbound travel demand models to test the substitution between domestic holiday travel and overseas holiday travel to short-haul and long-haul destinations. In this study, the USA and UK are chosen as long-haul destinations, whereas New Zealand, Indonesia, Singapore and Fiji are selected as short-haul destinations.

2. Outbound travel
In Australia, outbound travel accounts for about 40 per cent of total international travel which includes both short-term overseas arrivals and resident departures. In 1996, 4.2 million overseas visitors arrived in Australia compared to 2.7 million short-term Australian resident departures. In recent times, the outbound travel sector has expanded more rapidly than the domestic travel sector. The number of short-term resident departures has increased by an average of 6.1 per cent a year since 1974, from 0.8 million in 1974 to 2.7 million in 1996 (Table 2 and Figure 2). The number of business and VFR departures grew more strongly than the number of holiday and other departures.

Table 2: Short-term resident departures 1974-1996

1400 Holiday 1200 1000 Thousands 800 VFR 600 400 200 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

Business Other

According to a periodical analysis of the growth rates of outbound travel, the rate of increase in the number of short-term resident departures for holiday purposes has continuously declined over the period, from 7.8 per cent a year during 1974-1980 to 5.9

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per cent a year during 1981-1990 and to 0.7 per cent during 1991-1996 (Table 2). Such a continuous decline has not occurred in the number of short-term resident departures for business and VFR purposes, suggesting that the Australian outbound holiday travel market compared to business and VFR markets is maturing. The outbound travel market makes a significant contribution to the economy. The contribution was estimated to be $3.8 billion in 1993-94 and $2.9 billion in 1995-96 (Skene 1996; ODea 1997). About 69 per cent of the 1995-96 expenditure was incurred on airfares for overseas travel. The outbound travel sector is dominated by the holiday travel market which accounts for 46 per cent of the total short-term resident departures (Figure 3). However, the share of this market has declined over the last 23 years, from 59 per cent in 1974 to 56 per cent in 1990 and 46 per cent in 1996. The decline is caused by a strong growth in business and VFR outbound travel markets. The number of short-term resident departures for business and VFR increased respectively by 8.3 and 7.7 per cent a year between 1974 and 1996. As a result, the share of business travel market in the total outbound travel sector increased from 15 per cent in 1974 to 24 per cent in 1996, and the share of VFR outbound market increased from 18 per cent in 1974 to 25 per cent in 1996. The change in market shares suggests that the composition of the outbound travel sector is changing over time. This will have implications for accommodation, transport and retail industries in Australia and overseas destinations.

Figure 3: Short-term resident departures by purpose of visit, 1996

Other 5% VFR 25% Business 24%

Holiday 46%

3. Holiday outbound travel demand models

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As mentioned earlier, there are several factors associated with situational constraints that may have a significant influence on outbound holiday travel. However, the major variables included in the econometric models of outbound travel in this study are population, real income, the domestic and overseas prices of travel and accommodation, and exchange rates. The econometric models presented in equations (1) to (4) are single equation models which are specified in a simple double log linear functional form. The double log linear function is chosen because it is easy to estimate, provides superior fit, and the estimated parameters can be directly interpreted as elasticities. In addition, the double logarithmic linear function has been widely used in empirical studies of tourism demand (e.g, Loeb 1982; Witt and Witt 1992; Skene 1993; Kulendran 1995; Hamal 1996, 1996/97 and 1997). All of the four models were initially estimated to choose the best one. (1) (2) (3) (4) LHit = i 0 + i1 LYt + i2 LPt + i3 LQit + i4 LEX it LHit = i0 + i1 LYt + i2 LPt + i3 LQit LH it = i0 + i1 LYt + i2 LRPit + i3 LEXit LH it = i0 + i1 LYt + i2 LREXit

where LHit is the log of per capita short-term resident departures for holiday purpose to the ith destination; LYt is the log of per capita real household disposable income in thousands; LPt is the log of the price index of domestic holiday travel and accommodation deflated by CPI; LQit is the log of the price index of holiday travel and accommodation in the ith destination country proxied by that countrys CPI; LEXit is the log of the annual average exchange rate in the ith countrys currency per Australian dollar; LRPit is the log of relative prices of travel and accommodation (Pt/Qit) in the ith country; and LREXit is the log of the exchange rate weighted by the prices of domestic and overseas travel and accommodation. Population, which is expected to influence outbound travel demand positively, is included in the models by presenting dependent and independent variables on a per capita basis. This procedure is followed to avoid the consequences of a collinearity between population and income. The domestic and overseas prices of travel and accommodation represent respectively the cross-price and own-price of holiday travel and accommodation. The coefficient of crossprice variable measures the substitution between domestic and outbound holiday travel, whereas the coefficient of own-price variable measure a change in the number of outbound holiday travellers due to a change in the prices of overseas travel and accommodation. The estimated coefficients of own-price and cross-price variables are expected to have respectively a negative and a positive sign. Exchange rate is another important economic factor which is likely to have influence on outbound travel, because the purchasing power of outbound visitors varies with a variation

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in exchange rate. Hence the exchange rate, whose coefficient is expected to have a positive sign, is included in the above models. Model (1) is a relatively full model in the sense that it includes income, prices and exchange rate variables on an individual basis, whereas the other three models either exclude the exchange rate variable or specify these variables in different forms to increase the degree of freedom in their estimation process. The exchange rate is excluded in model (2); the domestic and overseas prices of travel and accommodation are combined together to form a single relative price variable in model (3); and the exchange rate is weighted by the relative prices of travel and accommodation to form a proxy for the real effective exchange rate variable. The exclusion of the exchange rate in model (2) is based on historical data on exchange rate and outbound travel to major destinations. Although the outbound holiday travel to the UK and USA and their respective exchange rates have widely fluctuated in the short-run, they have remained respectively up-ward and down-ward trended over a long period of time, from 1974 to 1996 (Figures 4 and 5). The number of short-term resident departures to the UK and USA for holiday purposes has increased over the last 23 years despite the depreciation of the Australian dollar against the UK pound and US dollar. One possible reason for such an inverse relationship between outbound holiday travel and the exchange rate could be that the influence of the exchange rate is immediately passed over to the prices of holiday travel and accommodation as observed in recent months in some Asian countries which were hit hard by the recent financial crisis.

4. Data
Outbound travel models were estimated using annual historical data from 1974 to 1996. Data on short-run resident departures, population, real household disposable income, the prices of travel and accommodation in Australia and overseas, consumer price indices and exchange rates were obtained from publications of the Australian Bureau of Statistics (ABS), the World Bank and the International Monetary Fund . Since a long time series of data on the prices of travel and accommodation is not readily available for overseas countries, the prices were proxied by the consumer price indices of those countries.

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Figure 4: Outbound holiday travel to the United Kingdom and the UK exchange rate
160 150 Resident departures (thousands) 140 130 120 110 100 90 80 70 60 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 0.40 Exchange rate 0.50 0.45 0.55 Outbound holiday travel 0.70 0.65 0.60 Exchange rate (Pound/A$)

Figure 5: Outbound holiday travel to USA and US exchange rate

250 Outobund hoilday travel Resident departures (thousands) 200 US exchange rate 1.60 1.40 Exchange rate (US$/A$) 1.20 1.00 0.80 100 0.60 0.40 0.20 0 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 0.00

150

50

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5. Model estimation and results

One of the basic assumptions of a regression model is that all of its model variables are stationary implying that the means, variances and covariances of the individual model variables are independent of the time period. If one or more variables are nonstationary, then the basic assumption falls apart and the estimated model will have the 'spurious regression problem' (Granger and Newbold 1974). This means that the error term will be highly correlated. Although the estimated ordinary least square regression coefficients remain unbiased, they become inefficient (Gujarati 1988, p. 363). The standard errors are incorrect and the estimated t, F and R2 values can be seriously overstated. As a result, any hypothesis test based on these statistics would be meaningless. The 'spurious regression problem' can be overcome by using cointegration and error correction mechanisms recently developed by Engle and Granger (1987). Stationary series are also known as integrated series. If a series becomes stationary after taking its first difference, the series is called integrated of order one. The order of integration in a data series can be tested using two types of unit root tests: the Augmented Dickey-Fuller (ADF) unit root test (Dickey and Fuller 1979) and the Phillips-Perron (PP) unit root test (Phillips and Perron 1988). Among these, the PP unit root test was used to test the stationarity of model variables in this study. This is because the test does not create a serious problem of losing degrees of freedom while adding more lag terms to correct an autocorrelation problem in the regression model. The unit root test results indicate that the model variables are integrated of different orders. In such a situation, a cointegration and error correction mechanism can not be used to derive the long-run and short-run parameters of outbound travel demand. Rather, the models (1) to (4) were estimated as simple double log linear regression models on the assumption that the estimated demand parameters remain unbiased. According to the regression results, models (3) and (4) were less useful than models (1) and (2) in terms of their predictive power and the signs of their estimated regression coefficients. Therefore, these models were not adopted to analyse outbound travel demand. The estimated regression statistics of the remaining models are presented by destination in tables B1 to B6 in Appendix B and discussed briefly below.

United Kingdom
The UK models could not explain all the variation in outbound holiday travel to UK. However, these models are a reasonably good fit with an adjusted R2 value ranging from 0.60 to 0.62. Among the two demand models, model (2) is chosen over model (1) because the exchange rate variable in model (1) has an unexpected sign. Model (2) suggests that outbound holiday travel to UK is positively influenced by income and the cross-price of travel and accommodation and negatively by the own-price of travel and accommodation (Table A1 in Appendix). The estimated coefficients of all model variables are highly significant.

United States of America

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Both models of outbound holiday travel to USA show a very good fit with an adjusted R2 value of 0.94 (Table A2 in Appendix). However, model (1) is chosen over model (2) because the exchange rate variable has an expected sign for its estimated coefficient, though the coefficient is statistically insignificant. According to model (1), outbound holiday travel to USA is influenced positively by income, exchange rate and the crossprice of travel and accommodation but negatively by the own-price of travel and accommodation. However, the influence is observed to be statistically significant only in the case of income and cross-price variables and not in the case of exchange rate and ownprice variables.

Fiji
The demand models of outbound holiday travel to Fiji are a reasonably good fit with an adjusted R2 value ranging from 0.83 to 0.84 (Table A3 in Appendix). Since model (1) has an expected sign for its exchange rate variable, the model is chosen over model (2). In model (1), the estimated income and price elasticities are observed to be highly significant and have the expected signs.

Indonesia
Both demand models of outbound travel to Indonesia have a high explanatory power with an adjusted R2 value of 0.99 (Table A4 in Appendix). However, model (1) is rejected in favour of model (2) because its exchange rate variable has an unexpected sign. With the exception of the own-price variable, all variables in model (2) have highly significant coefficients with expected signs. In other words, outbound travel demand to Indonesia is positively affected by income and the domestic price of travel and accommodation and negatively by the price of travel and accommodation in Indonesia.

New Zealand
Like the UK models, the New Zealand outbound travel models do not have a high predictive power, suggesting that there are some other factors influencing outbound travel demand to New Zealand. The adjusted R2 value is observed to be 0.50 in model (1) and 0.62 in model (2) (Table A5 in Appendix). Despite a relatively higher R2 value, model (2) is rejected in favour of model (1), simply because the latter includes the exchange rate variable with an expected sign. Short-term resident departures to New Zealand for holiday purposes are observed to be positively influenced by income, exchange rate and the price of travel and accommodation in Australia, whereas they are negatively influenced by the price of travel and accommodation in New Zealand.

Singapore
Among the two demand models of outbound holiday travel to Singapore, model (1) is chosen over model (2), because model (1) has a relatively higher explanatory power and an expected sign for the coefficient of its exchange rate variable (Table A6 in Appendix). As

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expected, the outbound travel to Singapore is positively influenced by income, exchange rate and the price of travel and accommodation in Australia, and negatively influenced by the price of travel and accommodation in Singapore.

6. Demand elasticities of outbound travel

The estimated demand elasticities of outbound travel are summarised in Table 3. On average, the number of resident departures is largely driven by the domestic prices of travel and accommodation followed by the price of overseas travel and accommodation and real per capita income. The estimated income elasticities, which range from 0.63 to 0.84, are positive and significant for all destinations except New Zealand and Singapore. The income elasticity of outbound travel to New Zealand is insignificant, whereas it is negative and insignificant in the case of outbound travel to Singapore. That is, income is not a driving

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Table 3: Estimated demand elasticities by destination Income cross price own price Exchange Destination Long-haul rate

Preferred model

Model-2 UK 0.840* 2.127* -1.828* (Adj-R2 = 0.62) Model-1 USA 0.628* 1.755** -0.993 0.173 (Adj-R2 = 0.94)

Short-haul
Model-1 Fiji 0.794* 2.348* -2.2339* 0.108 (Adj-R2 = 0.83) Model-2 Indonesia 0.821* 1.870* -0.196 (Adj-R2 = 0.99) Model-1 New Zealand Model-1 Singapore UES 1.350* -0.349 1.417* (Adj-R2 = 0.64) 0.006 1.157** -1.043* 0.147 (Adj-R2 = 0.50)

UNE denotes an unexpected sign.

factor for Australian outbound visitors to New Zealand and Singapore. The major driving factors are the price of travel and accommodation in Australia and those countries. As expected, the estimated own-price elasticities which measure a change in the number of resident departures to an overseas destination with respect to a change in price of travel and accommodation in that destination have a negative sign suggesting that outbound holiday travel demand is negatively affected by the overseas prices of travel and accommodation. The absolute value of cross-price elasticity ranges from 0.20 to 2.23. The estimated cross-price elasticities which measure a change in the number of resident departures to a overseas destination with respect to a change in the domestic prices of travel and accommodation show that outbound holiday travel is positively and significantly influenced by the domestic prices of travel and accommodation. This suggest a substitution between domestic and outbound holiday travel. In other words, outbound

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travellers do include the domestic prices of travel and accommodation in their final choices of outbound destinations. However, Table 3 and Figure 4 do not present clear cut evidence that the magnitude and significance of the coefficient associated with travellers substitution behaviour is inversely
Figure 4: Cross-price elasticity and its significance level by destination
2.5 2.0 Elasticity 1.5 0.08 1.0 0.5 0.0 New Zealand Fiji Indonesia Elasticity Singapore USA UK 0.04 0 0.16 0.12

Significance level

related to travel distance to outbound destinations. Considering Sydney as a reference point to measure the distance between Australia and overseas destinations, the UK is much further away than Indonesia, New Zealand and Singapore, yet it has a relatively larger cross-price elasticity. Also, the level of significance of the cross price elasticity is relatively higher in the UK model than in the New Zealand model. On the other hand, if only USA, Fiji and Indonesia are considered in the analysis of outbound travel demand, then there is evidence of an inverse relationship between travellers substitution behaviour and travel distance to outbound destinations. One of the reasons for such mixed evidence could be that some models (UK, New Zealand and Singapore) have not fully explained the variation in outbound travel demand. The adjusted R2 value is relatively low in these models ranging from 0.50 to 0.64 (Table 3). This means that the magnitude and significance level of cross price elasticity could be different if some more variables were added in these models to increase their explanatory power. In other words, the comparison of elastiicities between models with different explanatory power may not be a reasonable way to test the above hypothesis. Therefore, models with an adjusted R2 value of more than 0.80 are considered in this study to compare the estimated cross price elasticities. The comparison is shown in Figure 5 which clearly indicates that the further away an overseas holiday destination is, the less likely it is to be a substitute for a domestic holiday destination. In other words, Australian outbound travellers are very sensitive to domestic prices of travel and accommodation while

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Significance level

selecting a short-haul overseas holiday destination such as Fiji and Indonesia, but not so much while choosing long-haul destinations such as USA.

7. Conclusions
The available information suggests a substitution between outbound and domestic holiday travel in Australia. During 1979 to 1993, the domestic holiday trips remained flat while the number of resident departures for holiday purposes increased by 4.2 per cent a year. The substitution behaviour of domestic holiday makers has been statistically tested in previous studies but on an aggregate level, without due attention to whether an outbound destination is

Figure 5: Cross price elasticity and its significance level by destination

2.5 2.0 Elasticity 1.5 0.08 1.0 0.5 0.0 Fiji Elasticity Indonesia Significance level USA 0.04 0.16

a long-haul or short-haul destination. In this study, the substitution behaviour of outbound holiday travellers has been analysed with an emphasis on long-haul versus short-haul destinations. The substitution behaviour of outbound holiday travellers is likely to change by travel distance between domestic and outbound destinations. The number of resident departures is observed to be largely driven by the domestic prices of travel and accommodation followed by the prices of overseas travel and accommodation and real per capita income. Income was not observed as a significant factor in the case of outbound travel to New Zealand and Singapore. The estimated own-price elasticities were found to have expected signs suggesting that the outbound holiday travel demand is negatively influenced by the price of travel and accommodation in overseas destinations. The estimated cross-price elasticities which measure the substitution between domestic and outbound holiday travel demand show that outbound holiday travel is positively and significantly influenced by the domestic price of travel and accommodation. In other

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Significance level

0.12

words, outbound travellers do substitute overseas destinations for domestic ones. However, there is no clear cut evidence suggesting that the magnitude and significance of a coefficient associated with travellers substitution behaviour is inversely related to travel distance to outbound destinations. This could have resulted from defects in the estimated models of outbound holiday travel to the UK, New Zealand and Singapore. These models have not fully explained the variation in outbound travel demand. If the results from these models are excluded from the analysis of outbound travel demand, then there exists clear cut evidence on the inverse relationship between the magnitude and significance of substitution and travel distance to outbound destinations. In summary, Australian outbound travellers are very sensitive to the domestic price of travel and accommodation while selecting a short-haul overseas holiday destination, but less sensitive while choosing longhaul destinations.

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References
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Appendix
Table A1: Regression statistics of holiday models: United Kingdom Estimated Significance level Variable coefficient T-ratio MODEL (1) LY_AU 1.199 2.702 0.02 LP_AU 2.685 2.367 0.03 LQ_UK -2.462 -2.272 0.04 LEX_UK -0.558 -1.580 0.13 INTERCEPT -2.399 -1.732 0.10 MODEL (2) LY_AU LP_AU LQ_UK INTERCEPT 0.840 2.127 -1.828 -1.471 2.145 1.904 -1.741 -1.151 0.05 0.07 0.10 0.26 Other statistics

N= 23 Adj-R2 = 0.60 DW = 1.73

N= 23 Adj-R2 = 0.62 DW = 1.85

Table A2: Regression statistics of holiday models: United States Estimated Significance level Variable coefficient T-ratio MODEL (1) LY_AU 0.628 1.949 0.07 LP_AU 1.755 1.465 0.16 LQ_US -0.993 -0.632 0.54 LEX_ US 0.173 0.440 0.67 INTERCEPT -3.020 -1.616 0.12 MODEL (2) LY_AU LP_AU LQ_ US INTERCEPT 0.638 1.516 -0.762 -3.049 2.014 1.352 -0.498 -1.623 0.06 0.19 0.62 0.12

Other statistics

N= 23 Adj-R2 = 0.94 DW = 2.16

N= 23 Adj-R2 = 0.94 DW = 2.21

Table A3: Regression statistics of holiday models: Fiji Estimated Variable coefficient T-ratio MODEL (1) LY_AU 0.794 5.575 LP_AU 2.348 3.530 LQ_FJ -2.233 -3.044 LEX_ FJ 0.108 0.345 INTERCEPT 0.546 0.603 MODEL (2) LY_AU LP_AU LQ_ FJ INTERCEPT 0.776 2.166 -2.029 0.332 6.859 6.340 -5.399 0.5000

Significance level

Other statistics

0.01 0.01 0.01 0.73 0.55 0.01 0.01 0.01 0.62

N= 23 Adj-R2 = 0.83 DW = 2.16

N= 23 Adj-R2 = 0.84 DW = 2.20

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Table A4: Regression statistics of holiday models, Indonesia Estimated coefficient Variable T-ratio MODEL (1) LY_AU 0.723 3.666 LP_AU 1.758 3.815 LQ_ID -0.001 -0.004 LEX_ ID -0.177 -0.882 INTERCEPT -6.830 -4.590 MODEL (2) LY_AU LP_AU LQ_ ID INTERCEPT 0.821 1.870 -0.196 -7.927 5.297 4.313 -0.595 -10.260

Significance level

Other statistics

0.01 0.01 0.99 0.39 0.01 0.01 0.01 0.56 0.00

N= 23 Adj-R2 = 0.99 DW = 2.03

N= 23 Adj-R2 = 0.99 DW = 2.11

Table A5: Regression statistics of holiday models, New Zealand Estimated Significance level coefficient Variable T-ratio MODEL (1) LY_AU 0.006 0.035 0.97 LP_AU 1.157 1.636 0.12 LQ_NZ -1.043 -1.874 0.08 LEX_ NZ 0.147 0.468 0.65 INTERCEPT 1.362 1.689 0.11 MODEL (2) LY_AU LP_AU LQ_ NZ INTERCEPT 0.096 0.933 -0.846 1.316 0.876 1.817 -2.178 1.824 0.39 0.09 0.04 0.08

Other statistics

N= 23 Adj-R2 = 0.50 DW = 1.76

N= 23 Adj-R2 = 0.62 DW = 2.14

Table A6: Regression statistics of holiday models, Singapore Estimated Significance level coefficient Variable T-ratio MODEL (1) LY_AU -0.285 -0.837 0.41 LP_AU 1.350 2.148 0.05 LQ_SN -0.349 -0.270 0.79 LEX_ SN 1.417 2.358 0.03 INTERCEPT -3.433 -0.753 0.46 MODEL (2) LY_AU LP_AU LQ_ SN INTERCEPT 0.130 0.459 -0.671 1.704 0.338 0.721 -0.391 0.329 0.74 0.48 0.70 0.75

Other statistics

N= 23 Adj-R2 = 0.64 DW = 1.66

N= 23 Adj-R2 = 0.61 DW = 2.04

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