A Fresh Perspective on Airline Traffic Forecasting

Abstract

THE slowdown in the rate of growth of domestic air travel is now well known. Summer 1969 traffic reports were widely cited by the industry trade press as confirming this slowdown. What may be news to some airline industry traffic forecasters and investment analysts, however, is that strong indications of a slowdown in the demand for air travel were implicit in the second quarter 1968 traffic results roughly a year before the admittedly disastrous summer 1969 traffic reports became available. Earlier indications of the demand slowdown were based on an analysis of seasonally adjusted monthly trunk airline revenue passenger traffic, while the later confirmation of the demand slowdown was based on the traditional and widely accepted (but often misleading) approach involving same period year ago traffic comparisons. This study presents the results of an intensive analysis of seasonal factors in the domestic air travel market, and points out the hazards and limitations of relying on same period year ago comparisons (e.g., traffic in December 1969 versus December 1968 and December 1967) to determine the real direction of change in the demand for air travel. The analytical techniques discussed in this study also are highly relevant in appraising the output, sales, and profit trends in any other industry.* This study presents additional evidence confirming the intensification of the summer peaking characteristic of air travel demand in recent years in response to new promotional fares-a trend which the Civil Aeronautics Board has encouraged. Intensification of the summer demand peak has saddled the scheduled airlines with substantial incremental capacity costs and hampered their efforts to achieve more efficient operations. Earlier this spring, several trunk carriers requested authority to increase domestic fares by five per cent during the peak summer months to offset the higher costs of such service. Although the CAB denied the proposed summer air travel surcharge, the matter presumably will be studied further in the current domestic passenger fare investigation. The carriers' request for a surcharge on summer travel is consistent with a more rational approach to the pricing of scheduled air transport services. Rationalization of the structure of air fares to reflect more closely the true economic costs and value of service is basic to the preservation of the financial integrity of investor-owned scheduled airlines.