Spectral density estimation of European airlines load factors for Europe-Middle East and Europe-Far East flights

Abstract

Purpose In the airline industry the term load factor is defined as the percentage of seats filled by revenue passengers. The load factor is a metric that measures the airline's capacity and demand management. This paper aimed to identify serial and periodic autocorrelation on the load factors of the Europe-Mid East and Europe-Far East airline flights. Identifying the autocorrelation structure is helpful to develop the best fitted forecasting model of the load factors. Methods The paper applies spectral density estimation to investigate the structure of serial and periodic autocorrelation on the load factors. Then the paper applied multivariate trend model to develop a forecasting model of the load factors of the regional flights. The multivariate trend model is fitted using the Prais-Winsten recursive autoregression methodology. Results The primary analysis of the study identified that the airlines have better a demand than capacity management system for both the Europe-Mid East and Europe-Far East flights. The spectral density estimates showed that the load factors have both periodic and serial correlations for both regional flights. Therefore, in order to control the periodic autocorrelation, we introduce transcendental time functions as predictors of the load factor in the multivariate trend model. Finally, we build realistic and robust forecasting model of the load factors of the Europe-Mid East and Europe-Far East flights. Conclusions The econometric estimation results confirm that the load factors of the Europe-Mid East and Europe-Far East flights are both seasonal and differ between flights. The analysis implies that the load factor is still far from stable and stabilizing policies by airlines has so far not been successful. The AEA may therefore continuously focus on the stabilization and the improvement of the load in the industry.

Influence of Airlines’ Size and Labour Costs on Profitability

“…These analyses were complemented by performing multicollinear diagnoses to uncover any problems in the regressions. Model adequacy was analysed, and residual analysis diagnostics undertaken to confirm the efficiency of the model parameters following the steps pointed out by Tesfay and Solibakke (2015) and Tesfay (2016aTesfay ( , 2016b. Finally, a regression analysis estimated the relationships between the variables studied.…”

“…As mentioned above, to analyse the adequacy and diagnosis of the model through residual analysis and to confirm the efficiency of the model parameters, we followed the steps described by Tesfay and Solibakke (2015) and Tesfay (2016aTesfay ( , 2016b. Firstly, we computed the estimated residuals.…”

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“…In the airline industry, the term load factor is defined as the percentage of seats filled by revenue passengers. The load factor is a metric that measures the airline's capacity and demand management [8]. Connection with the load factor is reported in the study Airline Route profitability analysis and Optimization using BIG DATA analytics on aviation data sets under heuristic techniques, where we can see that the application of vital decisions for new airline routes and aircraft utilization represents an important factor for airline decision making.…”