Investigating the Impact of Air-Service Supply on Local Demand—A Causal Analysis

Establishing the extent to which the level of transport supply affects demand generation remains a daunting problem for the transport analyst because of reciprocal causation and dependency between supply and demand. After the US deregulation of domestic air transport, unprecedented increases in air-service supply were observed at many US airports, increases which can be considered to be clearly independent of local service requirements. The supply measures reflect improvements in service both to nearby major airports and to the United States as a whole. In this paper, a sample of three airports is examined in an attempt to establish causal relationships between local demand and several measures of air-transport supply. Causality is established by using cross-correlation-function analysis, and the impacts of supply on demand are determined by using time-series transfer-function modelling. Causality is found to be location dependent, but supply tends to affect demand with a 3–6–month lag. Supply in terms of the total number of destinations served was found to have a significant impact on demand at Syracuse, with estimated transfer-function elasticities of 0.5.