Modelling aviation fuel demand: the case of the United States and China

Abstract

AbstractThe aviation sector's contribution to the world economy is 8 per cent, while using 5.8 per cent of total world oil demand. Within the transportation sector, aviation consumes about 12.7 per cent of the total oil demanded by the transportation sector, with a growth rate of 2.32 per cent per annum in recent years, confirming the importance of aviation in the future energy market and economy. This paper considers modelling fuel demand in aviation sectors of two different markets. Jet fuel demand is modelled in the United States as a matured market and China as a fast growing market. A constant elasticity log‐log model using recent data of passenger aviation traffic, freight aviation traffic and airline load factors for both countries. Economic growth and fuel prices were also considered as determinants in the model. A system of three equations was developed for each country to forecast long‐term jet fuel consumption levels to 2025. The mature US aviation sector was found to react better to price and short‐term economic fluctuations, in contrast with the fast growing Chinese aviation sector, where the hike in prices did not seem to have much effect.