Aviation fuel demand development in China

- We analyze the core factors and the impact path of aviation fuel demand in China.
- Structural decomposition analysis was conducted for the aviation fuel cost changes and business profits increase.
- Aviation fuel efficiency and air transport total turnover are forecast on the basis of univariate and multivariate models
- China's aviation fuel demand will have increased to 28 and 50 million tonnes by 2015 and 2020.

This paper analyzes the core factors and the impact path of aviation fuel demand in China and conducts a structural decomposition analysis of the aviation fuel cost changes and increase of the main aviation enterprises' business profits. Through the establishment of an integrated forecast model for China's aviation fuel demand, this paper confirms that the significant rise in China's aviation fuel demand because of increasing air services demand is more than offset by higher aviation fuel efficiency. There are few studies which use a predictive method to decompose, estimate and analyze future aviation fuel demand. Based on a structural decomposition with indirect prediction, aviation fuel demand is decomposed into efficiency and total amount (aviation fuel efficiency and air transport total turnover). The core influencing factors for these two indexes are selected using path analysis. Then, univariate and multivariate models (ETS/ARIMA model and Bayesian multivariate regression) are used to analyze and predict both aviation fuel efficiency and air transport total turnover. At last, by integrating results, future aviation fuel demand is forecast. The results show that the aviation fuel efficiency goes up by 0.8% as the passenger load factor increases 1%; the air transport total turnover goes up by 3.8% and 0.4% as the urbanization rate and the per capita GDP increase 1%, respectively. By the end of 2015, China's aviation fuel demand will have increased to 28 million tonnes, and is expected to be 50 million tonnes by 2020. With this in mind, increases in the main aviation enterprises' business profits must be achieved through the further promotion of air transport.