Determinants of domestic air passenger demand in the republic of South Africa

Thesis (M.Economics) North-West University, Mafikeng Campus, 2014The purpose of this study was to establish the main socioeconomic factors that influence the demand for domestic air transport in South Africa. Based on the availability of data, the air transport demand presented as passenger enplanements was measured using an array of independent variables. The focus was only on domestic passenger movements in South African airports. This may assist airports to plan for their future developments. This dissertation examined the air transport demand in the last three decades (1971 - 2012). In the literature, air transport demand is associated with income, population, airfares, the introduction of deregulations and many other variables. Based on the literature review, this study created a demand model for domestic air transport market in South Africa. The model uses income, population, crude oil prices, and household consumption, expenditure, gross domestic product, airfares, and dummies as determinants of air transport demand. The ultimate model indicated that the most appropriate domestic air transport demand model for South Africa consists of income, population, airfares and crude oil prices as explanatory variables. The literature suggests that airports play a very essential role within the aviation industry and the economy at large. Thus, they contribute immensely to the socio-economic development of most countries. They improve the accessibility of people to geographical areas that are not easily and efficiently accessible with other modes of travel. They allow for time critical in- and outbound freight. In most cases, airports have significant direct impact in terms of employment and expenditure at the airports as well as the multiplier effect from employees spending their salaries in the economic markets. Hence, studying the demand patterns found in the domestic airports as well as determinants of such demand is fundamental for proper airport planning and development. Appropriate, effective and efficient airport planning is vital for the economic survival of the world economies. For airports to be economically sustainable, they also need to plan for the future. In most cases airports do their planning for the future based on the current and past experience. This study used the simple regression model to study the relationship between domestic air transport passenger travels using the known independent variables. This was obtained by specifying an equation for the variable to be measured with the equation taking the form:Knowing what determines passenger demand is necessary to define the facilities needed, the scale of such facilities, and the time at which they will be required. The objectives of knowing the determinants of air transport demand is to a larger extent, to provide information that can be used to evaluate effects of uncertainties about the future. To ensure consistency in the master plans of South African airports, the factors influencing air transport travel should be fully integrated into the planning process. From this study, the relationships between demand and the determinants of air transport was established. Subsequently, the socio-economic factors that normally influence the air transport demand were found to be the airport charges (landing fees, fuel prices), airfares, population, personnel disposable income, economic activity and status of the industry (e.g., GDP), geographic factors (e.g., distance), competition position, sociological factors (e.g. level of education, increased urbanisation) and political factors (e.g. open-skies/Yamoussoukro Declaration, government policies). The study then focused on the relationship between the domestic air passenger enplanement and some independent variables mentioned above. The ontological approach to this study followed the belief that the objectives of the thesis are of a deterministic nature, in that they can be predicted by the cause-and-effect laws. However, they need to be interpreted in terms of the contextual influences, understanding and interpretations of people in a specific setting and social reality attached to them. Hence the study was also guided by the literature on the determinants of air transport demand. The research paradigm adopted for the analysis of data is that of constructivism, embracing a pragmatic approach. The epistemology is that of mixed-methods approach, that is, it in part qualitative and in part a quantitative. An analysis of the contextual forces which have influenced airport demand was based on a quantitative approach. However, the qualitative approach was also followed, whereby literature reviews form part of research methodology. Research into the variables that influences the airport activity demand in South Africa was carried out by the mixed methods research approach, using the exploratory design procedure embracing a follow-up explanations model. The overall modus operandi of this design is the use of historical data to explain, or build on initial quantitative results. A simple regression model was used as a modelling technique to study the determinants of domestic air transport passenger demand. The focus is on the relationship between the dependent (passenger enplanements) variable and the independent variables. The model built was then calibrated to test its validity and ensure the accuracy of the model as well as ensuring that the explanatory variables included in the model are valid. STATA software was chosen for the analysis of data. The main categories examined using STATA are the coefficient of independent variables (magnitude), the probability (p) that socio-economic variables selected influence the dependant variable (pax), the P- value (p), Ttest (t), the model fitness (R2) and the Degrees of Freedom (df). The literature suggests that there is a correlation between the variables selected for this study. The theoretical assumptions about the air transport demand and its relationship to the socio-economic factors were then tested with the causal regression models. The results obtained will add value to the development of the holistic approach to determine the determinants of domestic air transport passenger demand desired for South Africa. The study suggests that income, airfares, crude oil prices and population are important estimators for measuring passenger movements in domestic air transport sector. Lastly, for further research this study suggests the exploration of South Africa's demand model by using time series approach and include the demand for international travel. In addition to this, O&D city pair investigation is another important study that should be carried out.Master