A dynamic demand analysis of the United States air-passenger service

This study examines the short- and long-run effects of various determinants on the demand for US air passenger-services using the Johansen cointegration analysis and a vector error-correction (VEC) model. Results show that, in the long-run, airfare, disposable income and NASDAQ have significant effects on US air travel demand. The combined short-run dynamic effects of disposable income, NASDAQ, population and airfare jointly explain changes in air passenger-miles. Finally, we find that the 9/11 terrorist attacks drop air passenger demand by 5% during 2001:Q3–2002:Q2, which in turn pushes down the seat capacity by 4%. However, it has little impact on airfare.

► We examine the dynamic effects of determinants of the demand for US air services.
► In the long-run, airfare, disposable income and NASDAQ have significant effects.
► In the short-run, income, NASDAQ, population and airfare are jointly significant.
► The 9/11 terrorist attacks drops air travel demand by 5% during 2001:Q3–2002:Q2.