Title: Maturity in the Passenger Airline industry?

Revisiting the Evidence and

Addressing Maturity in Forecasting the Future Market for Air Travel

Austin Smyth and Georgina Christodoulou

University of Westminster

1 ABSTRACT

Recent announcements of significant orders for new aircraft by airlines along with
plans for expansion of major hubs in the Arabian Gulf, suggest massive growth in the
future market for air travel. Moreover, notwithstanding the depth of the global
economic recession there appears to be an appetite in established air transport
markets for gearing up to anticipated growth. Such announcements and plans
prompt questions about the potential for growth in the market for air transport. While
the literature is replete with references to market trends and analysis less common
are detailed analyses of constraints on that market, including evidence of market
maturity. It would appear prudent to investigate the propensity towards market
maturity with a view to developing market projection tools that are capable of
producing robust forecasts of future market conditions. This paper provides a critical
review of the evidence of such conditions in the market and goes on to offer
recommendations on methodological improvements to address the challenges posed
by the requirement to produce reliable market forecasts.

2 INTRODUCTION

Recent announcements of significant orders for new large aircraft including the
Airbus A380 by airlines such as Emirates and Eithad, along with the development of
plans for large scale expansion of major hubs in the Arabian Gulf, suggest massive
growth in the future market for air travel. Moreover notwithstanding the depth of the
global economic recession and its effects particularly on Western Europe and North
America, there appears to be an appetite in established air transport markets for
gearing up to anticipated growth. However, such announcements and plans prompt
questions about the potential for growth in the market for air transport. The literature
is replete with references to market trends and analysis. Less common are detailed
analyses of constraints on that market, including but not exclusively the issue of
market maturity.

Given the scale of the investment it would appear prudent to actively investigate the
extent to which the market for air travel is subject to constraints and in particular the
propensity towards maturity with a view to developing market projection tools
capable of producing robust forecasts of market conditions. This paper provides a
critical review of the evidence of such conditions in the market and offers
recommendations on methodological improvements to address the challenges posed
by the requirement to produce reliable market forecasts.

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3 MARKET MATURITY AND APPROPRIATE INDICATORS

Market maturity can be viewed as one stage in a five stage market evolution
process. Stages 3 and 4 reflect maturity, as increases in demand become less for
given income growth. Stage 5 is equated to market saturation. Market maturity is
manifest in declining growth rates whilst saturation could be considered to exist if
there is no further growth (Graham, 2000). A totally mature market could be defined
as one which grows by no more than the income/economic growth (Graham, 2006).
A market which is moving towards maturity could likewise be represented by
declining growth rates in the travel share value.

Income elasticity is a useful indicator of the state of a market and tends to decrease
as markets become more mature. Both the UK‟s BAA and Department for Transport
(DfT) consider the leisure market to be becoming more mature and build this into
their forecasts by assuming declining income elasticities (CAA, 2002; DETR, 2000).
„Full' maturity occurs when income elasticity is unity or below. „Full' saturation refers
to an elasticity value of zero. Earlier stages of market maturity are considered to
exist when elasticity values are falling but are still larger than one. At the level of the
total market consumer expenditure is seen as the main long-term driver of demand
and it is often used to indicate the extent if any of market maturity (CAA, 2005). The
evidence collected in the course of an earlier UK Civil Aviation Authority (CAA)
investigation suggests that demand for air travel is income elastic (CAA, 2003).
Depending on the geographical market, long-run income elasticity values in the
range of 1.5 - 1.8 are evident for the period from 1993 to 2003 with higher values
evident in long-haul markets. However, while there is evidence that income
elasticities have declined over time in long-haul markets, full maturity in such
markets remains some way off. Thus the earlier CAA econometric analysis suggests
the potential for organic market growth (i.e. income and wealth driven as opposed to
price driven) remains quite high.

The declining sensitivity to income changes, as reflected in the air transport GDP
multiplier falling from 2.2 to 1.5, could indicate that the market is moving towards
maturity. Graham compared demand for air travel with consumer expenditure (CE),
arguably a better measure of personal income than GDP and demonstrated that the
CE multiple is considerably greater than 1 for international travel, but has reduced
since 1980, and when all holidays (including domestic) are considered, the sensitivity
to income changes is much less (Graham, 2006) . An alternative perspective is
offered by considering the share of total income spent on travel. If this ratio is
constant it will show that changes in income are not producing proportionally larger
changes in demand. In essence this is just another way of considering whether the
income elasticity is near to the value of one. Such assessments cannot differentiate
between the influences of income and travel cost.

Rolls Royce has defined a mature market as one where traffic growth is equal to the
sum of GDP and yield growth, with any additional growth is defined as 'product'
growth. The extent of 'maturity' is represented by a Maturity Factor (MF) which is
defined as GDP and yield growth divided by traffic growth. When the market is
mature, the MF will be 100%. When the market is less mature in the presence of
product growth, the MF will be less than 100% (Rolls Royce, 2009).

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4 MARKET DYNAMICS AND EVIDENCE OF MATURITY

Over the last few decades the air transport industry has experienced almost
ceaseless growth. While overall aviation growth, in terms of passenger-kilometres,
has been around 5 per cent per annum over the last 20 years. The rate of growth is
not uniform, in Europe and North America the growth rate is only around 3 per cent.
In emerging economies the rate is currently much higher. However, their growth will
tend toward the level in Europe or North America (Rolls Royce, 2009). Long-term
projections by international organisations, such as Boeing and Airbus forecast an
average annual growth rate of 4.7% until 2018 and Airbus is expecting an annual
growth of 5.0% for the same period (Airbus Industrie, 1999; Boeing, 1999). Growth is
more prominent in Latin American, Asia and the Middle East.

The long-haul market between Europe and Asia-Pacific, which includes the Indian
Subcontinent, China and Japan, is the 2nd largest in terms of traffic (RPKs). Half of
the passengers added in the last three years originated in China and India. High
growth from China and India will continue to create new network opportunities.
(Airbus, 2009). In China, there are currently few non-stop routes to and from
secondary cities, but more are expected to emerge by the end of the next decade as
wealth spreads and the country‟s aviation network develops. The high rate of organic
growth of these routes will result in a high density of routes (Njegovan, 2006). India‟s
network however, is more mature, with shorter distances from Europe and traffic in
new markets 30% less dense than in China. This is consistent with typical long-haul
trends, where the longer the route, the larger non-stop markets (Airbus, 2009).

Liberalisation of air services is expected to drive growth on Latin American trans-

Atlantic flows, fast growing economies in Asia for the Europe-Asia flow and the trans-
Pacific flows, and new emerging sub-flows from/to the Middle East or Africa. (Airbus,
2009).

It is expected that slower growth in demand within North America and Europe could
be indicative of market maturity (Rolls Royce, 2009; Boeing, 2009). However, within
Europe, many new routes are expected to open in or to serve Eastern Europe
(Boeing, 2009). In contrast, there is a substantial growth rate for Europe to Middle
East, Africa and Asia Pacific, indicating that analysis of the European market should
be looked at in terms of destination and openings of new routes. The largest growth
rates are attributed to China and India (Rolls Royce, 2009).

While the US has the largest air travel system in the world. the air transportation
industry in the US has undergone significant restructuring since 2001 (FAA, 2007).
While adjustments in costs have been the focus of the industry, changes in the
demand structure have also occurred (Bhadra et al, 2008) According to Airbus
Industrie (Airbus Industrie, 1999), domestic US travel, which accounts for a quarter
of all traffic, has been expected to experience the lowest annual growth rate (2.7%).
Furthermore, some no-frills services are reaching maturity in North America and
Western Europe. Conversely there is little evidence of maturity in the long haul
sector (CAA, 2005). Although there is some evidence that income elasticities have
declined over time in long-haul markets the potential for organic market growth (i.e.
income and wealth driven as opposed to price driven) remains quite high for longer
routes.

© Association for European Transport and Contributors 2011

The evidence suggests that at a global level the market for air travel does not exhibit
strong indications of maturing. Boeing has calculated ratios of Revenue per
Passenger Kilometre (RPK) to GDP, e.g. World had a ratio of 1.6, Europe 2.2. North
America 1.3, Asia Pacific 1.5, Africa 1.2 and Middle East and Latin America had a
ratio of 1.7. A value above 1 suggests evidence of maturation in that market.
However, the evidence based on income elasticities as well as other indicators
including multipliers suggests that maturity is becoming evident in certain key
markets including those of particular relevance to the UK. For instance, Airbus‟
analysis of more than 150 sub-markets indicates evidence of maturity in at least 3
major sub-markets, including Domestic US, Intra-Western Europe and Domestic
Western Europe. Moreover, despite an impressive overall growth record some
industry observers have expressed concerns about the future traffic developments
(Njegovan, 2006). They argue that although the industry is doing well in volume
terms, this is only because airlines are heavily discounting and that this situation
might not be sustainable for much longer.

5 INFLUENCES ON AVIATION DEMAND

5.1 Growth Rates and Maturation

Lian et al (Lian et al, 2004) explored the relationship between growth rates in air
traffic and economic growth. In many forecasts and time-series analyses income
elasticity has been around 2.0 (Doganis, 1991). However, new products or
innovations introduced to markets often follow an S-shaped growth pattern, with
growth rates declining sooner or later. The key issue is to identify where on this S-
shaped curve we are at any one time. At the start of the commercial air transport era,
tickets were expensive and business travel was dominant, but later, as air travel
„filtered down‟ socially, leisure travel increased its share. Thus, business air travel as
a proportion of the total market has been on a long-term decline for decades
(Bender et al, 1998). Pilarsky et al (Pilarski et al, 1996) studied the two most mature
market regions, the US domestic market and the North Atlantic, and concluded there
was no evidence of declining elasticity values. However, their evidence does appear
to point to a tendency towards maturity. Moreover, Graham claims that the British
leisure market is mature, and that declining growth rates are expected for the future.
Furthermore, the stimulating effects of supply side factors, such as increasing
number of destinations, increased frequency and reduced ticket price, will gradually
decline.

5.2 Motivators of air travel demand

When forecasting/modelling market maturity it is necessary to gain an understanding

of what it is, how it is influenced and how to recognise it. According to the American
Travel Survey the share of business travel had fallen from some 70% in the late
1950‟s to 43% in 1995. The same declining trend can be found in most markets, but
there might be differences between countries in how far the process has come. In
the UK, the leisure market totally dominates international air traffic. Business travel
accounts for only 20% of total air traffic (Department of Transport, Statistics on
Internet).

© Association for European Transport and Contributors 2011

In addition to income motivators related to personality traits and attitudes may
influence the propensity of the consumer to travel by air. They may also be
influenced by the promotional activities of the providers. Motivators of air travel
demand may also limit growth suggesting demand maturity or even, at the extreme,
demand saturation (Graham, 2000). For instance, in the leisure market in many
western societies, growing experience of travel, better education and changes in
family structure, life style and life stage have meant that there has been a marked
broadening of the range of requirements for the holiday product. This has meant that
there has been a growth in demand for adventure, cultural and special interest
holidays and new destinations (Graham, 2006).

The increasing sophistication of communication technology (videoconferencing, the

internet and so on) was expected to have an impact on business travel but studies
have indicated that it has in fact has little influence on travel patterns as much of
business life is very much about building networks (Lian et al, 2004). The distinction
between business and leisure travel, however, will become less discernible as
business travellers become more price sensitive and place greater emphasis on
multiple-purpose trips, such as those involving out of town conventions held at
leisure-oriented destinations‟ (TRB, 2000).

Other modes of travel have had limited impact on air passenger demand. In parts of
Western Europe, modal shift to rail is becoming more relevant as high speed trains
(HST) are introduced even though due to distance, topography and market size,
business travel between most cites is likely to be mainly by air for many years to
come (Lian, 2010).

5.3 Determinants and Constraints on Air Transport Growth

A range of factors affect air travel demand. Each factor can stimulate or constrain air
travel growth (Abed, 2001). Core demand for air travel is assumed to be supported
by the economic and demographic conditions in the origin and destination
communities (Bhadra, 2008). The external environment includes those factors which
are outside the control of the individual airline and even the entire airline industry.
These are basically long range economic, social, demographic, and political trends
(BCAC, 1993). Similarly, short-term conditions such as information, interest rate and
currency exchange rates can have a strong effect on the growth potential of both
individual airlines and the total industry.

Air transport growth may be constrained because of supply factors within the air
transport industry, such as lack of runway slots, insufficient terminal capacity or
airspace congestion (Graham, 2000). Improvements in technology ranging from
satellite navigation or self-service check-in may help to alleviate this problem, but not
overcome it totally (AEA, 1999; Butterworth, 1999) Growing environmental concerns
may also have the effect of preventing new infrastructure developments or limiting
the capacity of existing facilities as is already the case with Amsterdam and
Dusseldorf airport (Hartmut-Rudgier, 1999; Veldhuis, 1992).

Establishing whether there are limits to growth or whether maturity is setting in is

often undertaken by investigating past growth trends and assessing whether there is
any pattern emerging, such as an S-shaped curve or falling growth rates. For

© Association for European Transport and Contributors 2011

example, annual growth rates of US domestic air traffic dropped from 15% in the
1950s to 5% in the 1980s which some analysts (e.g. James, 1993; Woolsey, 1993)
saw as one sign of market maturity. Clearly the fundamental weakness here is in
assuming that demand is purely a function of time and this can be very misleading.
Bowles (Bowles, 1994) defined a mature market as one that grows by no more than
the rate of economic growth of the country.

Comparing travel growth solely to economic growth ignores the important influence
that travel cost or price can play. Graham notes globally airline yields have fallen by
over 50% in real terms since 1970 (Doganis, 1991; Doganis 2002). This means that
although there has been considerable growth in passenger-kms, a comparable rise
in revenues has not been experienced. Thus airline revenue growth, rather traffic
growth, in many ways is more useful for airlines as a measure of demand and
increased business (Sentance, 2001).

The travel cost will determine the amount of income that needs to be spent on
(leisure) travel and can be divided into two separate elements: namely, the cost of
travel to and from the destination (i.e. the transport cost) and the cost of living at the
destination. This in turn will be affected by factors such as exchange and inflation
rates (Graham, 2006). The influence of cost of travel (to and from destination) can be
more than the impact destination cost for long-haul, whereas for intra-regional travel
the opposite is generally the case (Graham, 2006).

In addition to income and price a major influence on leisure travel is the availability of
leisure time. The so-called „leisure society‟ which was being confidently predicted for
the 21st century has not materialised. While holiday entitlements may have
increased, greater work pressures and fears about job security have led to people
not wanting to be away from work for long periods, and have thus contributed to the
trend towards shorter holidays which has been observed in many western
economies. Other factors, such as more flexible working conditions and increased
difficulties in co-ordinating holiday time for the growing number of couples who are
both in full-time employment, have also contributed to breaks. With many „cash-rich‟
and „time-poor‟ societies, it could be argued that the limiting factor to travel is more
likely to be time rather than money. Modal choice may be more relevant in this
situation as time saving, gained by travelling by air rather than by car or taking a
high-speed train, is likely to be more important when the overall length of holiday is
shorter (Graham, 2006).

5.4 Drivers of Future Traffic Growth

.
While it seems likely that traditional drivers of demand such as income, cost and time
will continue to play an important role in influencing demand the market for air travel
may increasingly be influenced by other demand drivers such as the costs of other
components of international travel or economic growth (Njegovan, 2006). In less
developed economies, it is likely that economic growth will still play a significant role
in stimulating travel growth of new travellers beyond the level of GDP growth,
whereas in more developed countries, travel cost is likely to have a far greater
impact in encouraging additional trips.

© Association for European Transport and Contributors 2011

The routes that passengers actually fly will depend not only on where they would like
to go, but also on where the airlines can profitably operate to in a challenging market
environment (Airbus, 2009). In the past, a significant part of growth allocation was
attributed to network development. Hubs have been crucial, not only because few
long-haul city pairs could survive without the connecting traffic, but also because
they are often the destinations people want to fly to. Consequently, some 77% of
long-haul demand and 73% of long-haul routes involve at least one of 32 global hub
cities (Airbus, 2009). However, the increasing environmental challenges posed for air
transport could have a significant effect on demand in Western societies in particular
stemming from fiscal and of other regulatory measures.

6 INFORMING A VIEW OF EUROPEAN MARKET DYNAMICS

This review of available evidence suggests that the UK short haul market is likely to
have entered a mature phase (Njegovan, 2006). This argument is supported by the
work by the UK CAA, which indicated that the network coverage of Low Cost Carrier
(LCC) short-haul routes to and from the UK has reached a maximum. More generally
the European LCC market is well established and beginning to mature. As well as
seeking new routes, for which the number of opportunities will steadily decrease,
operators will look to consolidate and grow existing markets and routes, inevitably
leading to the need for larger aircraft. There is still significant potential for LCCs in
large domestic markets, such as in Spain or Italy, although competition with other
modes of transport, such as the high-speed train, is more pronounced on shorter
distances.

The evidence does suggest that for the long haul market there is little sign of
maturity. Evidence collected in the course of the CAA‟s (CAA, 2005) own
econometric investigation suggests that overall demand for air travel is income
elastic. Although there is some evidence that income elasticities have declined over
time in long-haul markets, full maturity can still be considered to be some way off.

7 MODELLING DEMAND AND MARKET MATURITY

7.1 Methodological Approaches

While a wide range of applications can be identified fundamental designs tend to

follow similar approaches. These approaches are not designed primarily to focus on
market maturity but rather to reflect the overall dynamics of the markets they are
intended to explain. For instance, Bhadra et al (Bhadra et al, 2008) provided an
analysis of the fundamental structures and dynamics of the O&D‟s of core air travel
markets in the US using quarterly data covering 1995–2006. When segmented by
types of markets, they found that while so-called super-thin routes lost service, other
market segments gained service. A majority of passengers fly on the thick routes
that account for only a small portion of the markets and there the demand has
continued to grow over time. To capture the basic demand drivers underlying the
O&D market pairs, an empirical framework formalised the relationship between
passenger flow to average fares, incomes of these core communities, and market
distances between communities.

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Many organisations engaged in forecasting air passenger demand growth do so at
least in part on basis of econometric models. Boeing‟s forecasting methodology to
determine future travel demand employs econometric models at an individual traffic
flow level for optimistic to pessimistic scenarios (Boeing, 2011). Boeing‟s baseline
forecast reflects a combination of developing and maturing markets, including
possible maturity trends in the latter part of the forecast period, consideration of
competitive and policy influences, changing demographics and travel purpose
(Boeing, 2011). The econometric modelling approach employed involves two
functional forms; log models – primarily for measuring developing markets (elasticity
is constant) and linear models – primarily for measuring mature markets (elasticity is
variable) (Boeing, 2011). Key indicators used to assess the aviation market include
economy (GDP), passenger traffic (revenue passenger km – RPK), cargo (revenue
tonne km – RTK) and aeroplane fleet (Boeing, 2011).

Airbus addresses how variations in underlying factors, such as the oil price, a
recession or accelerated market liberalisation, can affect traffic growth and demand
for air travel. The approach to forecasting uses econometric or hybrid models to
conduct sensitivity analysis around their baseline traffic forecast in a more
systematic way (Airbus, 2009). Airbus forecast process is based on four major
building blocks: detailed market research, suitable market segmentation, targeted
use of econometrics and detailed network development analysis (Airbus, 2009).
Airbus market research examines the fundamental drivers of transportation including
future consumer behaviour and expectations, the pace of liberalisation, modal
competition, the growing importance of emerging markets and constraints, such as
the influence of airport congestion. The market is segmented by airline business
model, region and traffic flow, which enables the precise circumstances and drivers
prevailing in each segment to be fully considered.

Econometric data is then used to quantify future air travel demand based on
economic, operational and structural variables. Airbus has developed a unique
process that uses real and future passenger demand to determine the most likely
airline operations on a route by route basis. Initially, future growth is calculated down
to origin and destination (O&D) of passengers (Airbus, 2009). Each origin and
destination has a specific growth rate based on either the size of the economy in a
metropolitan area (data permitting) or using a set of market typologies, such as
urban growth, historical local traffic growth, presence of no-frills carriers, etc.
Calculation of the routes of each of O&D gives the optimum “virtual network of
routes”, which is then matched to the actual network to obtain values of the
parameters influencing passenger choice of routes. In addition to current routes new
routes are added to test the feasibility and to identify from which existing routes they
could attract traffic, also dropped routes are incorporated. Future routings of all
O&D's are consolidated, with differentiation between those passengers connecting
and travelling point-to-point. The total traffic growth on each individual route is then
calculated, making it possible to estimate fleet requirements.

Rolls Royce compiled traffic forecasts from analysis of 21 different markets (traffic
flows), each of which is at a differing stage of maturity, and is subject to different
market forces. Thus the average annual growth rate of 4.8 per cent per year is built
up from many separate elements (Rolls Royce, 2009)

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The UK BAA forecasts passenger throughputs comprises two elements: 1) economic
techniques are applied to a matrix of the base traffic, using judgement where
appropriate, to project unconstrained traffic growth for various market segments; 2)
capacity limits are taken into consideration in order to determine the extent to which
demand can be accommodated. Whenever unconstrained demand exceeds capacity
of a particular airport the excess traffic will either „spill-over‟ to other airports or they
are lost from the system (CAA, 2006).

It is understood that the UK‟s CAA has sought insights into the characteristics of the
UK air travel market with particular reference to evidence concerning any tendency
towards maturity in the marketplace. It focused on trends in the market as a whole
over time, and not on individual routes or sub-markets. The analysis therefore would
not have focused on the potential underlying causes of slowing growth of the market.
However, it is understood the CAA has also recognised gaining insights into
maturation requires longer datasets, and, by doing so, sacrifice the disaggregation
used in most forecasting models.

7.2 Market Segmentation and Forecasting

Market segment information is useful as a supplement when evaluating technically

advanced forecasts. As Graham (Graham, 2000) , notes forecasts or elasticity
studies should be: „…complemented by an analysis of different demand segments as
they are likely to approach maturity at different stages‟. Analysts need to recognize
that in markets where price discrimination is possible aggregate data will not allow
for accurate predictions of demand responses in the relevant market segments
(Gillen et al, 2008).

Thus the 2009 Airbus Global Market Forecasts (GMF) provide analyses of 156
distinct domestic, regional and intercontinental passenger sub-markets, segmented
according to their degree of maturity and specific characteristics over time. The
market is segmented by airline business model, region and traffic flow, which
enables the precise circumstances and drivers prevailing on each segment to be
fully considered (Airbus, 2009).

Gillian et al (Gillen et al, 2008) observe income elasticity values can and do differ
significantly between travel distance, type of traveller and even domestic and
international routes. The usefulness of estimates should be based upon other criteria
such as the inclusion of income coefficients and distinctions between types of
passengers and airports. Route-specific data is especially valuable in capturing
competitive, geographic and market differences. Simply segmenting markets by
business and leisure is insufficient to provide any degree of accuracy to forecast
changes in passengers with changes in fares.

© Association for European Transport and Contributors 2011

8 CONCLUSIONS AND RECOMMENDATIONS

Existing or recent evidence pointing to market maturity is subject to high levels of

uncertainty in the short to medium term and thus professional judgement is required
as to the extent to which assumptions concerning such conditions are robust. The
evidence reviewed in this paper suggests that different segments of the EU and US
markets for air travel are exhibiting very different dynamics. While for instance the
UK short haul market does appear to be exhibiting signs of maturing it appears that
long haul market segments are exhibiting real signs of continuing growth potential.

Ultimately any demand model will be judged in large measure on its ability to
represent as accurately as possible key drivers of consumer behaviour, including
macro-economic, socio-economic, lifecycle and lifestyle, demographic, geopolitical
and globalisation factors, supply side responses, including fares and airport and
ATM capacity, and the behavioural effects of public policy intervention levers e.g.
environmental taxes. In the short term we recommend, where market maturity is
anticipated such an effect should be addressed through sensitivity analysis at market
segment level reflecting the level of uncertainty that exists in understanding of future
market projections due to constant changes in aviation. Such sensitivity tests are
intended to complement the main forecasts generated by key stakeholders
Application of these modified income elasticities as substitutes for the estimated
income elasticities will yield revised demand projections. These together with
modelled projections will facilitate bracketing of future forecasts for the most likely
range of propensities towards market maturity.

Application of sensitivity tests should be complemented by further investigation of the

relationship between income elasticities and trip making. Many agencies maintain a
wealth of data and research which should yield improved insights into this
relationship and with it the opportunity to incorporate more realistic representation of
market dynamics within models, including tendencies toward maturity, and thereby
reduce reliance on assumptions about markets.

Aggregation of data tends to lead to a reduction in the power of models and in

particular to loss of their behavioural sensitivity. Such limitations are evident when
market segments are aggregated or indeed when data points are aggregated or
averaged e.g. monthly or quarterly to an annual basis. It is our strong
recommendation therefore that modelling is undertaken at the maximum level of
market segmentation possible. However, where the time period for specific variables
is limited then analysis of subsets of data/variables should be exploited to maximise
exploitation of the richness of the data. Agencies are also encouraged to explore
application of different function forms to represent market conditions in each of the
market segments, similar in concept to the approach used by Boeing among others.
These might be anticipated to include various logistic and polynomial functions.
Models estimated for a range of function types could yield projections with a greater
element of behavioural sensitivity and able to represent a maturing market in a way
more useful in policy testing. This could reduce reliance on sensitivity tests.

Disclaimer: The material on which this paper draws has been informed in part from research undertaken on
behalf of the Department for Transport. However, in no way can the observations made and the opinions offered
by the authors be regarded as reflecting the views of the Department.

© Association for European Transport and Contributors 2011

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