Demand for Air Travel in the United States: Bottom-Up Econometric Estimation and Implications for Forecasts by Origin-Destination Pairs

This paper investigates the relationship between local area characteristics and origin and destination (O&D) travel. A semi-log linear demand relationship for O&D travel is specified by combining data from the U.S. Department of Transportation on O&D travel with data from the Department of Commerce on local area economic and demographic activities. The resultant dataset has more than 50,000 observations. Using a limited information maximum likelihood estimation procedure, demand for air travel is estimated in 11 market segments within the contiguous national airspace system (NAS), defined by non-stop distance traveled between O&D pairs. The findings confirm that local area income and demography have a positive affect on travel for most markets. However, the levels of travel tend to eventually go down as the intensity of economic activities increases. Shorter distance travel tends to be relatively more inelastic than that for longer distances. Average fare tends to affect passenger travel negatively for all distances. Large hubs are important for passenger travel as are the higher market share of established airlines and the presence of Southwest Airlines in the O&D market. The paper also discusses approaches using this methodology for deriving bottom-up forecasts. These forecasts are useful for analyzing features such as passenger and aircraft flows within the NAS, determining and prioritizing infrastructure investment and determining workload of Federal Aviation Administration personnel at regional centers. The results from these forecasts can be used to complement those produced by the terminal area forecasts that are derived from top-down models.