Development of an airline traffic forecasting model on international sectors

Near-perfect competition scenario has gifted concerns to any industry in terms of demand splits amongst service providers. This is even more consequential in the airline industry where superior service levels rule the day. That player who gets maximum mappings from the set of his(airline) offerings to the set of customer preferences drives the demand. The economic reforms of 1991 followed by the deregulation of Indian skies has witnessed exponential growth of the airline industry and has resulted in near-perfect competition. This is more so in the International sectors, where once (only)domestic carriers, have commenced across border operations. Hence, demand for the service assumes prime importance and airlines have to be aware of their demand on respective sectors prior to operations. In the above context, this paper discusses a methodology to develop a passenger traffic forecasting model for airlines operating on international sectors from India. The model is a fusion of the gravity model in physics and micro-economic theoretic model linking demand to price. This research provides a comprehensive picture of the factors affecting airline demand, especially, factors outside service that could play an important role in demand growth. The model will be tested on data provided by Air India, the national carrier chosen for the purpose of the study. The model, though applied to Air India would have general applicability.