ANALYSIS OF STIMULATED DOMESTIC AIR TRANSPORT DEMAND IN TURKEY

Abstract This paper investigates phenomenal growth of the Turkish domestic air transport demand in the last three decades. In the literature, air transport demand growth is associated with income, population, airfares and the introduction of deregulations. Based on the literature review, this study creates demand model for domestic air transport market. The model uses income, population, crude oil prices, alternative modes of transportation such as railroad and high-speed rail, consumption, expenditure and liberalization dummies as determinants of air transport growth. Ultimate model indicates that the most appropriate demand model consists of income, population, highspeed rail passenger number, crude oil prices and liberalization dummies as explanatory variables. In order to test the model, we use panel data approach with fixed effect specification model. Moreover, Bardsen (1989) error correction transformation applied. This lets analysis obtain short and long run elasticities of variables. As a result, income and population changes are determined as the main drivers of Turkish domestic air transport demand. Furthermore, the 2003 deregulations had a significant positive effect on demand changes. However, contrary to expectations, outcomes show that high-speed rail passenger number and crude oil prices are insignificant. Despite the high growth in the last ten years, Turkish domestic market is still immature market and has a high potential to grow further. We come up with this result by calculating elasticities of income and comparing the outcomes with the results of other related studies. As a result, study suggests income and population are important estimators for forecasting prospective traffic and passenger increases in domestic air transport sector. Lastly, for further research this study suggests to explore Turkish demand model by using time series approach. In addition to this, O&D city pair investigation is another important study that should be carried out.