DEPARTMENT OF MANAGEMENT

CODE: BBAV3001 SUBJECT: AIRLINE FINANCE AND AVIATION INSURANCE

AIRLINE TRAFFIC, FINANCIAL

FORECAST & REQUIREMENTS

FACULTY: SHIV KUMAR SHARMA COURSE: BBA AVIATION

AIR TRANSPORT TRAFFIC
• Air transport forecasts are crucial for airport planning and the
determination of future capacity requirements and ACI’s World
Airport Traffic Forecasts provides detailed data for 110 countries
consisting of passenger and cargo volumes and aircraft movements.
Global passenger traffic was over 8.8 billion in 2018 and is expected
to double by 2037.
• Airline passenger traffic. The number of scheduled passengers
handled by the global airline industry has increased in all but one of
the last 15 years. Scheduled passengers refer to the number of
passengers who have booked a flight with a commercial airline.
PASSENGERS ON GLOBAL AIR
• Global air traffic - scheduled passengers 2004-2019. Number of
scheduled passengers boarded by the global airline industry
from 2004 to 2019 (in millions) It is expected that 2019 will set
a new record in terms of the number of scheduled passengers
with almost 4.6 billion, around 130 percent higher than in
2004.
• There is no doubt that the future of the aviation industry is
positive and the passenger traffic worldwide is expected to
double to more than 19 billion by 2037.
WORLD AIRPORT TRAFFIC FORECASTS

• Global passenger traffic was over 8.8 billion in 2018 and is expected to double by
2037. Over the long term, it is projected to grow at an annualized rate of 3.7 per
cent, reaching 19.7 billion by 2040.
• Asia-Pacific’s airports are predicted to account for half of all worldwide passenger
traffic growth from 2018 to 2040. Indeed, China is projected to become the
largest passenger market in 2031 and will dominate passenger rankings in 2040
with just over 3.5 billion passengers which equates to an 18 per cent share of the
global passenger traffic market.
Top 10 largest passenger markets across time (2010–2040)
WORLD AIR TRAFFIC FORECAST
• The United States and India will follow, with 2.9 and 1.3 billion passengers
respectively. Together, the three countries will handle almost 40 per cent of
global passenger traffic. Indonesia, currently the 10th largest market in terms of
total passenger traffic worldwide, is expected to rapidly climb in the country
rankings, reaching the fourth position by 2036.
• Emerging and developing economies will account for almost 60 per cent of all
passenger traffic by 2040. Of the countries that handled more than 50 million
passengers in 2018, Vietnam, India, Saudi Arabia, the Philippines and Indonesia
are projected to be the fastest growing from 2018 to 2040.
FACTORS BEHIND GROWTH OF AIR TRAFFIC

In the long run, several factors are behind the soaring growth in air transport
demand.
• Growing economies, declining cost in air travel and an emerging middle class in
developing countries with large populations will create a wave of new potential
air travelers and boosting demand for air services.
• Higher living standards are an important determinant and countries with large
population bases – including Brazil, Russia, India and China – have witnessed
considerable expansion of their middle class and their working-age populations.
FACTORS BEHIND GROWTH OF AIR TRAFFIC….CONTD

• Despite trade tensions and downside risks in the near term, emerging
economies should sustain a continued increase in the propensity to
travel. Emerging economies, particularly in the Asia-Pacific region,
should remain major engines of growth in the long term.
• Heightened industry competition throughout the aviation sector is also
an important driver. There is no doubt that the low-cost business model
increasingly adopted by airlines and historically low jet fuel prices have
acted as promoters to stimulate demand through lower fares.
• Improvements in aircraft economics as older fleets are replaced,
together with enhanced airline efficiencies, will also continue to reduce
aircraft costs per trip.
WHAT IS REQUIRED
• While it is evident that air transport relies on open markets to grow, it is
also evident that, in markets with strong air transport demand, airport
operators already face capacity constraints that suppress growth.
• Action must be taken to address this growing infrastructure gap.
• Given that more than 200 airports already require slot coordination
because they have insufficient capacity to meet demand. Government
regulators must come together with the aviation industry to ensure that
existing capacity can be better utilized while facilitating new and improved
infrastructure to improve efficiency and the passenger experience.
PASSENGER TRAFFIC BY GLOBAL AIRLINE INDUSTRY 2004-2021
PREDICTION - VARIABLES
• Predicting a variable for a future point in time helps planning for unknown
future situations and is common practice in many areas such as economics,
finance, manufacturing, weather and natural sciences.
• Modern revenue management systems significantly increase revenues of
airline companies. Airline tickets are usually sold for several booking classes
differing in price and booking conditions. Passengers buying higher class
tickets are willing to pay a higher price and thus contribute more to airline
revenues than low fare passengers, which is why airlines would like to give
priority to them.
• Two variables are important: (i) the demand and (ii) the cancellation rate
for airline tickets.
airline revenue management
• MAXIMUM PROFIT: Revenue management tries to maximize profits by investigating
and forecasting customer behavior and drawing appropriate conclusions.
• SALE OF TICKETS: In the airline industry, the central objective of revenue
management is determining how many seats for each booking class should be sold
prior to departure.
• CANCELLATION: The risk of rejecting a booking in a low class in order to wait for a
higher class booking has to be judged. Forecasting of ticket demand with
corresponding no-show and cancellation rates are a crucial component.
• DEMAND: Forecasting has a long track record in airline industry, mainly because
forecasting future demand has a direct influence on the booking limits for the
different fare classes
Traditional time-series forecasting
• PATTERN & REGULARITIES; Forecasting and forecast combination is a well-
researched area. Time series forecasting looks at sequences of data points,
trying to identify patterns and regularities in their behavior that might also
apply to future values. A large number of time series forecasting methods with
different degrees of flexibility and complexity are available;
• Consequently, there are many ways to generate forecasts and one might end
up with more than one forecast for the same problem. This leads to the
question, whether or not some or all of the individual forecasts can be
combined to obtain a superior forecast.
• PASSENGER BASED FORECASTING: In many real world applications,
information that goes beyond ordinary time series data is often available. In
services industry, data is often collected on a customer basis and can be utlised
with data mining methods that help modelling and understanding various
groups of customer behavior.
FORECASTING
•.
• AVERAGE AND SMOOTHING: A simple approach to forecasting is taking the
arithmetic mean of the most recent values of the time series that way, old and
potentially inapplicable values can be discarded.
• REGRESSION: Regression approaches express a forecast or dependent variable as
a function of one or more independent or explanatory variables that relate to the
outcome.
LINEAR METHOD MODEL
• Airline companies indicate their flights with a combination of letters and numbers
such as ”6E1940”, which represents flight 1940 flying for IndiGo airlines.
• These are called flight numbers and usually indicate flights flying on a specific route
on a specific time of the day. While this specific flight only flies once.
• Tickets for these flight are available many days before the flight departure date,
such that consumers can buy tickets in advance. Luckily for us this gives us also the
possibility to observe the prices of each of these flights throughout, for example,
60 days before the flight leaves.
• An example plot of the price of these observations on the 60 days before departure
is given below in figure.
Figure 2.1: Observations of ticket prices of flight 6E1940 departing from DELHI Heading to
TRIVANDRUM at 17/12/2029 . With (in red) four quantiles: 25th , 50th , 75th and 100th .
 FORECAST COMBINATIONS
Four main reasons for the potential benefits of forecast combinations have been
identified:

1. It is unbelievable to be able to correctly model a true data generation

process in only one model. Single models are most likely to be
simplifications of a much more complex reality, so different models might
be complementary to each other and be able to approximate the true
process better.
2. Even if a single best model is available, a lot of specialist knowledge is
required in most cases to find the right functions and parameters. Forecast
combinations help achieving good results without in-depth knowledge
about the application and without time consuming, computationally
complex fine-tuning of a single model.
3. It is not always feasible to take all the information an individual forecast is
based on into account and create a superior model, because information
THANK YOU VERY MUCH