An Augmented Gravity Model for Forecasting Passenger Air Traffic on City-pair Routes

Demand and supply for commercial air travel are not independent. A more popular route allows airlines to increase the number of non-stop flights, which further shifts demand. Forecasting future air travel demand on inter-city routes requires distinguishing endogenous and exogenous determinants of service quality. The paper presents successful econometric estimates of gravitybased models of passenger numbers with subsidiary models of (a) price (controlling for airline competition), (b) provision of non-stop services, and (c) frequency of daily flights, for two markets: cross-border flights between Canada and the USA, and domestic air travel within New Zealand.