Briefly explain how Airbus and Boeing develop their 20-year forecasts. Note the

Question

Briefly explain how Airbus and Boeing develop their 20-year forecasts. Note the factors that influence projected air travel growth; some factors affect the demand curves while others influence supply. Be certain to distinguish between the two. The connection between the microeconomic theory of supply and demand as presented in Baye and Doganis should be explicit. Then explain the forecasts for growth in the chosen world region. Provide some perspective to forecast growth in the rest of the world.

Explanation / Answer

Despite the fact that there is evidence of the general inter dependency relationship between air transportation and economy’s GDP, the interaction and growth patterns between these variables vary both between economies and over time for a single economy. Air passenger and GDP growth patterns for countries aggregated by geographic region. While both the volume of air passengers and GDP have been growing on average in every region, the individual growth rates and changes in the growth rates vary. Between 1970 and 2005, East Asia & Pacific, Middle East and South Asia came to play a more prominent role in the world’s passenger traffic because their shares doubled during that time period. As the Enabled Flows change the Economic Attributes, the Travel and Freight Need, or air transportation demand, between the Economy and the Rest of the World changes as well. The changes in potential demand affect the Air Transportation System Supply which is set by the airlines whose decision to operate a particular route and pricing and scheduling of flights are influenced by their assessment of passenger and freight demand for the origin-destination market, their assessment of the route’s profitability as part of the overall network, the capability of airport and navigation infrastructure, and the available airline resources. The internal supply and demand relationship between airlines and the potential passenger and freight need between the economies results in the physical Air Transportation Flows of passengers and cargo which take place between an Economy of interest and the Rest of the World. The study estimated that air transport industry generates a total of 29 million jobs globally through direct, indirect and induced jobs in aviation, civil aerospace manufacturing and tourism. The global economic impact was estimated to be around 8% of world GDP.The independent socioeconomic and geographic variables to derive the passenger traffic model: That are Gross Domestic Product (GDP), Domestic versus international travel opportunities, Distance between the countries, The flows of services between each country-pair, Variable accounting for the intervening opportunities based on the respective GDP's and distances between countries.

The changes in traffic patterns following changes in bilateral air services agreements, five variables pertaining to the international aviation agreements: 1. permitted number of airline designations, 2. capacity controls, 3. pricing controls, 4. fifth freedom rights, 5. restricted route definitions.

Changes in the regulatory framework affect the airlines’ operational environment and define the scope of competition for both domestic and foreign carriers. Deregulation of domestic services and liberalization of international services are two of the main regulatory mechanisms responsible for changes in air transportation supply. Other regulatory mechanisms consist of privatization and ownership restrictions, safety restrictions, environmental and noise restrictions, political and economic restrictions, and security restrictions.

Inbound Business Passengers enable the flows of labor, services, knowledge and investment affecting the economy’s Capital, Skilled Labor and Firm Strategy. Outbound Business Passengers enable the flows of investment, services and knowledge affecting the economy’s Capital, Skilled Labor, Firm Strategy and Demand Conditions. Personal Business Passengers enable the flows of investment, knowledge, labor, services, and remittances affecting the economy’s Capital, Skilled Labor, Unskilled Labor and Demand Conditions. The major purpose of travel for Personal Business Passengers is visiting friends and relatives, health, migrant, and education-related trips. Leisure Passengers affect the Economy’s Demand Conditions by enabling the tourism flows between economies. Cargo flights carry goods between economies and affect the Economy’s Capital, Firm Strategy and Demand Conditions. Air cargo alleviates surface infrastructure deficiencies by providing fast and reliable transportation for high-value and perishable products.

The understanding of the relationship between air transportation and economic activity in the following ways: Identifies and describes the types of growth patterns between air transportation passengers and GDP using broad-scope analysis of trends at the individual country level. Provides a description of air transportation development and the enabling impact of air transportation for twenty-two representative countries from varying income and regional categories. Identifies demand- and supply-side change factors which may stimulate or suppress air transportation system development. Describes the role of government intervention in the development of the air transportation system. Develops a framework for describing the enabling impact of air transportation. Develops a quantitative model of the enabling impact of tourism in Jamaica to explore positive and adverse consequences of air transportation.

For example the transportation development in India has been lagging economic development until the air passenger traffic experienced unprecedented growth starting in 2003. India is the largest country in South Asia and the world’s second most populous country. While the change in the growth rate of air passenger traffic is relatively recent, the country’s economy has experienced steady growth over the last two decades with an average rate of 6.0% between 1985 and 2005 growth in air passenger traffic and GDP. Between 1985 and 2005, the average growth rates for the number of passengers carried by India’s airlines and GDP were 4.7% and 6.0%.

To conclude that The Airbus and Boeing develop their 20-year forecasts shows a noticeable increase this will help the countries in world wide to increase their GDP through transportation of the factors of production. And also from the balance of trade.

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