DOMESTIC AIR TRAVEL DEMAND ANALYSIS -A POLICY ORIENTED APPROACH

Abstract

Civil aviation in India is a regulated industry, with the Director General of Civil Aviation (DGCA) performing the regulatory functions. Indian Airlines, until recently had a monopoly on the provision of domestic air travel service. Air India provides international service. In 1992, air taxis began operating domestically, providing additional service within the air transport system. Over the last five years Indian Airlines has not returned encouraging financial results. The net loss to the airline tripled from Rs. 64.6 crore in 1990-91 to Rs. 198.65 crore in 1991-92. When the Air Corporation Act of 1953 came into effect, Indian Airlines was established as the sole supplier for domestic air travel service. It therefore had to strike a delicate balance between maximizing profits and providing social service. From time to time domestic travellers had expressed dissatisfaction with the service offered by Indian Airlines. Despite the apparent lack of confidence in the airline, the market has been maintained at a high level because there was no comparative alternative. The government had vocalized its intention to open up the skies to the establishment of private airlines. However, its announcements were not usually followed up by timely actions deemed as necessary to achieve stated objectives. There seemed to i be inadequate information at policy level for sound decision making. In the context of a likely change from a single government -owned carrier to a multiple carrier industry, the objectives of the research were: i. to analyze the impact of private airlines and the likely deregulation of routes on the performance and earnings of the national carrier, ii. to analyze the behaviour of travellers in the domestic air transportation market. This included:- a. Segmentation of air travellers into homogeneous groups, and b. mode choice behaviour of air travellers, where the .choice between Indian Airlines and private airlines was determined, iii. to suggest policy changes and strategies to augment the air transportation supply system to serve better the potential demand. Data for the research were obtained from annual reports of Indian airlines and cross referenced with air transport statistics produced by the Director General of Civil Aviation. The available data summarised performance within the jystem as a whole. Routewise data was deemed as confidential, marketing information. That decision therefore precluded from the research any origindestination analysis. 11 Additional data were collected in a transportation survey conducted at Delhi domestic airport. This survey focused on gathering information on travel choice through random sampling. A questionnaire was issued to travellers, requesting them to assess the performance of Indian Airlines and private airlines in respect of eight attributes. Just over nine hundred responses were received during a typical week. An in-depth time series analysis was conducted on the transportation production and utilization volumes recorded by Indian Airlines between 1979 and 1992. Several different trend models were tried to establish the yearly and quarterly trends. At the same time several statistical measurements were evaluated to determine the statistical validity of each, model. In all cases a parabolic curve represented the best fit. Yearly analysis indicated, that the rate of growth in the air transport industry was decreasing. Moreover, it was observed that the industry had met a saturation point with Indian Airlines as the sole provider of service. Analyses on quarterly volumes provided information on the variability of the market during a typical year. Seasonality was investigated and found to be present only with relatively small variances. With very little peaking and troughing, planning in the industry could be done easier. It was found that there was significant auto-correlation between the errors which lagged one iii year apart, suggesting that cyclical patterns were present. Stepwise regression analysis was used to generate models which linked transportation utilization volumes to economic and other transportation statistics. These models were intended to show how transportation utilization varied with factors which could be changed by policy decisions. The models genrated indicate that the domestic air transport industry was capacity constrained. In other words, growth was limited by the capacity of Indian Airlines and not by economic activities. There was also evidence that the market was price inelastic. Unit cost analysis was also conducted. This analysis has wide recognition as one of the most comprehensive productivity measures. There was indication that unit cost in the air transport industry was increasing rapidly. It was evident that Indian Airlines was operating at a level that brought diseconomies of scale whenever it expanded. In the absence of any other true alternative in the market, it was difficult to tell whether the market was getting the best price for service. A unit cost function relating unit cost to other transportation characteristics was also generated. The model brought out the fact that capacity expansion was not favourable to Indian Airlines. It suggested therefore that the corporation stood to benefit from an opportunity to halt fleet expansion. In this context, and with the market showing potential for growth, a basis iv was established for the acceptability of introducing private airlines into the domestic market. Factor analysis was conducted to reduce the number of eight performance variables for further use in choice analysis. Travel choice behaviour of eleven segments of domestic air travelers was examined by use of the binary logit model. It was found that travellers were more concerned with factors relating to service delays. Therefore check-in service, convenience of flight times and baggege claim service were common among various market segments. It was reasoned that competition between the airlines could force them to eventually have almost indistinguishable service characteristics. All things being equal Indian Airlines is likely to have a market share that is relative to it size when compared with private airlines, as seat availability and destination coverage become the more prominent distinguishable factors. Policy decision can therefore be made to the benefit of all the parties with interest in the air transport system. Private airlines can be brought in to increase the capacity of the system to satisfy potential demand. Indian Airlines can be directed to cease its fleet expansion programme. Immediately, the corporation should carryout a self examination of its managerial practices to determine a new agenda for the new scenario of competition. Although the corporation stands to lose some market share initially, it would gain an opportunity to present a better image to travellers, as problems with seat availability and punctuality will diminish when it is not overstretched. Criticism of the airline would reduce substantially. Further burdensome debt could be foregone so that the corporation will have a better chance at financial recovery.