Climate & Debates

Is the long-run Demand for Air Transportation Set to Grow? An Empirical Analysis of the US Domestic Air Travel Demand

Published on 27 February 2024

By Guido Amato

JEL codes: R4; R41; L9; C53

The aviation industry holds immense importance in the United Sates since it plays a pivotal role in economic growth and development. However, to make the aviation industry work at the best of its possibilities, an accurate forecasting of air passenger demand is crucial both in the short and in the long term. Focusing on the long term, according to the Federal Aviation Administration’s projections, the domestic air travel demand in the US is expected to grow at rates of about 2.6% per annum for the next 20 years. These projections may derive from an optimistic approach on the evolution of key variables that influence the air travel demand. By using a reduced form model which includes the national Gross Domestic Product and airline ticket prices, and by including factors which are usually overlooked when forecasting air travel demand such as the impact of climate change, the fiscal imbalance, and the increasing income inequality, this paper investigates whether the Federal Aviation Administration projections can be considered as realistic or not. Although some limitations, this paper finds that the Federal Aviation Administration’s projections slightly overestimate the air travel demand growth and that the effects of the above-mentioned factors will be limited. Moreover, this paper provides some preliminary qualitative insights in terms of policy implications and underlines the areas in which further research is expected in the future.

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