Proceedings of SOM 2014

December 12-14, 2014

Department of Management Studies, IIT Roorkee
pp.532-537

Passenger Demand Forecasting of

Indian Aviation Industry
Mukesh Kumar Barua1, Somesh Mohapatra2
1
Department of Management Studies, Indian Institute of Technology, Roorkee
2
Department of Metallurgical and Materials Engineering, Indian Institute of Technology, Roorkee
1
barua71@gmail.com

Abstract: Aviation industry in India has gone through lots of changes in the last few years, with air companies going out of
services, new companies coming in, stiff competition from the low-cost airlines and much more. With such a situation, factors
like economic growth, GDP and all play a major factor in the number of passengers preferring to travel by the airlines.
Hence, it has become a necessity to predict the passenger footfall in the upcoming years, to help the airlines cater to the
changes in passenger numbers.

This paper aims at forecasting the passenger demand in the Indian scheduled aviation industry in the upcoming years. We
study two significant factors that could affect the forecasting, namely, Passenger Seat Kilometres and Gross Domestic
Product rates. Passenger Seat Kilometres, on a monthly basis for about four years, shall give us an idea of the number of
passengers who travelled by the airlines in the said period, and GDP rates shall be synonymous with the improvements in the
economic status of the people. This study has been carried out with data obtained from dbie.rbi.in (GDP monthly data), and
indiastat.com (Month-wise Performance of Civil Aviation). We use the time series method, especially the Winters model,
using the monthly data from July, 2010 to May, 2014 to obtain the results, with comparable estimation errors. We hope that
finding of this study shall aid airlines to prepare themselves to the utmost levels to accommodate the changes in the passenger
demands in the years to come.

Keywords: Forecasting, Aviation Industry, Passenger Seat Kilometres, Time Series, Gross Domestic Product.

1. INTRODUCTION Section 3 enlists the objectives, Section 4 provides the

Analysis of the aviation industry and forecasting of the
demand has become an utter necessity in the rise of
unpredictability. With regard to the airport development,
airline expansions, increment of existing facilities, and so on, it
is necessary to analyse and forecast the passenger demand in
the future, taking into consideration the seasonal and cyclical
patterns.
The air-travel demand can be affected by two factors, internal
and external; airfare, et al as the internal factors, and Gross
Domestic Product (GDP) and population as external factors
(Lyneis, 2000). GDP gives us a fair idea of the economy of the
nation, and the use of it in the forecasting shall be statistically
significant (Karlaftis, 2008).
methodology to be followed in forecasting, Section 5 gives the
analysis of the data, Section 6 concentrates on the Forecasting
of the Passenger Seat Kilometres, Section 7 deals with
limitations of this study, and Section 8 deals with the
conclusion drawn from the entire process.
2. LITERATURE REVIEW
The growth of aviation sector and the change of economy
influenced by the change in Government, inclusion of Foreign
Direct Investments and so on have attracted numerous
researchers and academicians to analyze the situation. Thus,
various studies have emerged in forecasting of the passenger
demand, correlating several factors of economy like GDP, et
al.

This paper focuses on the co-relationship between GDP and Rothlauf, Grosche and Heinzl (2007) studied the effects of
Passenger Seat Kilometres, and has been divided into five several variables on the changes in the demands of aviation
primary sections, Section 2 provides the Literary Review,

XVIII Annual International Conference of the Society of Operations Management (SOM 2014) 532
 Passenger Demand Forecasting of Indian Aviation Industry
sector, and used the GDP as the variable representing the level
of economic activity.
Suryani, Chou and Chen (2010) relate the air passenger
demand forecasting with several variables, and then propose a
GDP sub-model for the variation in GDP to be accounted for.
Boeing (2012) and Airbus (2011) respectively predicted about
the requirement in the Indian aviation sector to be about 1600
and 1290 aircraft by 2030.
National Transport Development Policy Committee (2012)
associated several variables, regulatory framework, and other
factors coming up with changes in investment policy, clear
delineation between authorities et al.
Rao and Parikh (1996) used the Time Series model to forecast
and analyse the demand of petroleum products in India. Their
study indicated of high demand of the products in the future
and commented on the need of investment to augment the
demand.
Segura and Vercher (2000) speak on the usage of Holt-
Winters model in the forecasting of demands in the short-
term, and the ability to measure the forecast errors using the
spreadsheet modelling approach.
3. OBJECTIVES
The main objectives set by this study are listed
i. To study the data of Passenger demand in the Indian
aviation industry, and estimate the pattern
ii. To relate the Passenger demand with economy of India,
by taking GDP as the demarcation for the economy, and
studying the relation thereof
iii. To forecast the Passenger demand in the aviation
industry in the upcoming years
4. METHODOLOGY
The objective of every forecasting method is to estimate the
systematic component of demand, within appropriate random
component based errors. The systematic component in its basic
form consists of level, trend, and seasonal factor to aid the
forecasting.
The form of forecasting being used is Mixed, with a
composition of Additive as well as Multiplicative form, with
the basic equation being
ba_\aZ] +^$^`_`a =
(R_@_ + }2_`D) _\b^`\ \]a^2
XVIII Annual International Conference of the Society of Operations Management (SOM 2014)
A static method of forecasting is being used in the following
forecast. It works with the assumption that the estimates of
level, trend, and seasonality do not vary as the new demand is
observed. It depends on the historical data, and follows the
trend as such to forecast the systematic component, here
Passenger demand, from that data.
After a rigorous analysis of the data at hand we found out that
the seasonality and the trend being prominent features in the
data table. The variations could be observed within
approximate ranges, and the increasing trend, with seasonal
variations remained pre-dominant.
This led us to use the previous demand as a basis for the
anticipated demand. Hence, we used the Time Series
Forecasting Method, with an assumption that the trend and
other factors in the data remain same over the time.
Amongst the Time Series Forecasting Methods, we found out
that Winters Model which is Trend-and Seasonality Corrected
Exponential Smoothing, as the one for the forecast.
4.1 Details of Winters Model
This model uses both multiplicative and additive factors to
forecast the demand. Mathematically
< = ( R + `} )<
< = Forecast of demand for period t+n
R = Estimate of level at end of period t
} = Estimate of trend at end of period t
) = Actual demand for the observed period
< = Estimate of seasonal factor at end of period t+n
For the estimate of the level at the end of period t, we use the
De-seasonalised demand, which can be found out using the
actual demand in the previous and next time periods varying at
half the periodicity factor, and then taking the sum of all of
them and dividing by twice the periodicity observed. The
mathematical representation for this is
)> + )< +
!<<
2 )
&
ZZZ =
!<>
)
& & &
2$
In the current forecasting, $ = 2 has been used.
The estimates for level, trend and seasonal factor have been
R< = ()< < ) + (1 )( R + } )
done in the following manner
}< = &(R< R ) + (1 &)}
<< = g()< R< ) + (1 g)<
As of the constants, = 0.1, and =0.1, have been used in the
calculations. has been the varying factor calculated by the
data in the spreadsheet.
533
 Passenger Demand Forecasting of Indian Aviation Industry

4.2 Use of Spreadsheet Modelling Approach
The spreadsheet modelling approach takes the ongoing trend
of the data, and the seasonal factors into account and tabulates
the data for the upcoming time period. The forecast made is
purely based on the previous trend, and takes into account the
undulations in the data of the past. In this manner, it fairly
forecasts the changes in the data that might occur in the future.
Thus, using the Winters model as the base-model, and the
Spreadsheet Modelling Approach as the procedure, we forecast
the Passenger Seat Kilometres in the upcoming years.
5. DATA ANALYSIS
The relation between Passenger Seat Kilometres (PSK), and
various other independent variables, namely Consumer Price
Index (CPI), Inflation Rates, and Gross Domestic Product
(GDP) has been taken into account. Their respective
correlation have been calculated, and tabulated in the
following table, Fig 1. It is observed that GDP and PSK have
the best correlation with a value of 0.595.
Hence, the monthly data of Passenger Seat Kilometres and
Gross Domestic Product rates from July, 2010 to May, 2014
have been analyzed further for details of trend, seasonal factor
or any other dependence.
5.1 Analysis of Passenger Seat Kilometres
The Passenger Seat Kilometres are mostly on a rise with very
few significant falls, indicating an overall increasing trend
throughout the time space.

Fig. 1. Table for Correlation between Different Independent Variables and Passenger Seat Kilometres

CPI CPI (Rural + Inflation Petrol GDP Rates

Correlations PSK
(Transport) Urban) Rates Inflation Rates (Monthly)
PSK 1 0.1204481 -0.251700988 -0.21808316 0.004583935 0.595110532
CPI (Transport) 0.120448097 1 -0.049321926 -0.08037772 0.688600454 0.599228308
CPI (Rural + Urban) -0.251700988 -0.0493219 1 0.91289801 -0.278074273 -0.2752109
Inflation Rates -0.218083158 -0.0803777 0.912898013 1 -0.484578346 -0.30224627
Petrol Inflation Rates 0.004583935 0.68860045 -0.278074273 -0.48457835 1 0.57209634
GDP Rates (Monthly) 0.595110532 0.59922831 -0.275210901 -0.30224627 0.57209634 1

7000000 11

10
6000000
9

Gross Domestic Product (%)

Passenger Seat Kilometres

5000000
8

4000000 7

3000000 6

5
2000000
4
1000000
3

0 2
40400

40600

40800

41000

41200

41400

41600

41800

Time Period
Passenger Seat Kilometres Gross Domestic Product

Fig. 2. Passenger Seat Kilometres v/s GDP

XVIII Annual International Conference of the Society of Operations Management (SOM 2014) 534
 Passenger Demand Forecasting of Indian Aviation Industry
The seasonal factor is quite notable in the data collected. There
is an increase in the Passenger Seat Kilometres in the months
of March, May and October, which is appropriately explained
by the holidays, summer vacations et al that fall at the
particular times of the year. The fall in the data is in the
months of February, September and December, which can be
related to as the prime months in the Corporate and
Government sector, with the Financial Year at its peak.
5.2 Analysis of Gross Domestic Product
The month over month data of Gross Domestic Product in
percentage does not follow a regular trend in the time space.
Though, there is a significant fall in the GDP rate after June,
2011, and the fall continues except a sharp rise in July, 2012,
till February, 2013. There have been small rises during May,
2013 and November, 2013 that appear as hillocks in the graph.
There is a rise in the GDP from April, 2014 onwards but it
shall be too primitive to judge the trend. All these data can be
correlated with the state of the Indian Government at those
times, and the dramatic rise or fall explained by the
implementation of the budget in the following months. The
change of the Government towards the end describes the
undulations in the graph.
5.3 Relation between Passenger Seat Kilometres and Gross
Domestic Product
The month over month percentage change in the Gross
Domestic Product gives an idea of the instantaneous effects of
the changes in the economy of India, and the Passenger Seat
Kilometres denotes the usage of the air transport in the
particular month. Thus, it is imperative that the both must be
linked to one another.
As expected, the Passenger Seat Kilometres and the GDP are
correlated with each other by a lagging factor of about 2
months. Every rise or fall in the GDP is manifested in the
Passenger Seat Kilometres. This trend of correlation is
observable throughout the time space, and has significant
instances in the times when there has been a major change in
the GDP. This correlation, along with the lagging factor can be
explained as the economy of the nation affecting the usage of
the aviation sector, and that the effect of the changes in the
economy denoted by the GDP is reflected in the Passenger
Seat Kilometres as the policy takes effect in the due course of
time.
The corresponding graph, Fig. 2 explains the situation in an
affirmative manner as explained in the above lines.
6. FORECASTING OF PASSENGER SEAT
KILOMETRES
Using the data available from July, 2010 to May, 2014, and the
Winters model, owing to the trend and the seasonal factor in
XVIII Annual International Conference of the Society of Operations Management (SOM 2014)
the data, we apply the Spreadsheet Modelling Approach to
forecast the Passenger Seat Kilometres in the upcoming years.
The forecast has been graphically represented in Fig.3.
6.1 Spreadsheet Modelling Approach to Forecast Passenger
Seat Kilometres
Using the Spreadsheet Modelling Approach, we forecast the
Passenger Seat Kilometres in the upcoming years. Upon
plotting the forecasted data, the linear regression equation
turns out to be
y = 5191695.739 + 12194.667 x,
where y is the Passenger Seat Kilometres, x is the number of
months
In this equation, the y-intercept, or the forecast for the first
month is 5191696 approximately, and the slope is positive,
being 12195 approximately.
The slope of the equation, being positive, agrees to the trend of
the increasing values of the Passenger Seat Kilometres in the
previous years, and as forecasted, it is expected to follow the
same trend in the due course of time. Quantitatively, the value
of the slope is a staggering 12195 Passenger Seat Kilometres /
month, which needs to be handled in an effective manner.
Now, coming to the various other information given by the
forecast by the Spreadsheet, we observe that the mean
Passenger Seat Kilometres shall be about 5.55 million over the
next five years. This is also a huge number, and the facilities,
handling capacities of the airport, terminal, et al need to be
modelled, or renovated keeping this in mind.
Relation between the Forecasted Passenger Seat
Kilometres and the changes in GDP
With a fair forecast of the Passenger Seat Kilometres for the
upcoming years, we now relate it to the changes in the GDP
that may take place in the forthcoming years.
The change in the Government, the new policies attracting the
Foreign Direct Investments in various sectors, especially
aviation industry, has brought new hopes for the much
anticipated positive changes in the GDP of the nation.
The Passenger Seat Kilometres would be affected strongly by
such increments in the GDP, and shall go on increasing, as has
been forecasted before. Thus, the possibility of error in judging
the economy, and forecasting the Passenger Seat Kilometres as
much higher than what it may turn out to be seems less.
Moreover, there might be very less variations in the Actual
Demand from the Forecasted Demand, owing to the following
of the trend by the Spreadsheet Modelling Approach used in
the Forecast.
535
 Passenger Demand Forecasting of Indian Aviation Industry

Fig. 3 Forecasted Passenger Seat Kilometres

7000000

6500000
Passenger Seat Kilometres

6000000

5500000

5000000

4500000

4000000

3500000

3000000
Jun/14

Feb/15

Jun/15

Feb/16

Jun/16

Feb/17

Jun/17

Feb/18

Jun/18

Feb/19
Aug/14
Oct/14
Dec/14

Apr/15

Aug/15
Oct/15
Dec/15

Apr/16

Aug/16
Oct/16
Dec/16

Apr/17

Aug/17
Oct/17
Dec/17

Apr/18

Aug/18
Oct/18
Dec/18

Apr/19
Time Period
Forecasted Passenger Seat Kilometres

7. LIMITATIONS OF THE STUDY cost airlines coming into the competition fray, or other such
unanticipated changes in the aviation industry.
This study undertakes the relationship of GDP, and Passenger
Seat Kilometres, and forecasts the Passenger Seat Kilometres 8. CONCLUSION
on the basis of the increasing trend that has been depicted by
the data collected over the past few years. These data might not This paper forecasts the passenger demand in the upcoming
be the only ones to reflect the changes that might occur in the years, using the Passenger Seat Kilometres, for the passenger
future. There might be several other independent variables, demand, and the GDP, as a factor reflecting the economy.
which must be clearly studied to have a comprehensive There are several other factors linked with the increase in the
forecast. Passenger Seat Kilometres which range from the aircraft
handling capacity of the airport, passenger handling capacity
The method used is Winters Model and Spreadsheet of the terminal to the entertainment, food and other amenities
Modelling Approach which uses the past trends, seasonal that are essential to the infrastructure of the airport for the
factor et al to forecast. This might not be appropriate with convenience of the passenger. These factors need to be
changing trends. Moreover, the approach uses a static method increased along with the increase in the Passenger Seat
which doesnt undertake the changes at every step but treats Kilometres. This forecast aims to aid the organizations
the trend of the data as a whole. So, a dynamic approach might involved in the aviation industry to renovate, or develop
give a better forecast, or concur with the forecast given by this accordingly to cater to the rising demands in the number of
study. passengers as forecasted.

Apart from the above mentioned limitations, the major The data of the previous years for the Passenger Seat
unforeseen changes in the data that might occur in the future, Kilometres was observed, and upon analysis, it was found to
for instance, with a new and promising government at the be following an increasing trend, and seasonality.
centre, GDP of India might receive a boost and increase more
than forecasted. This abrupt change in the GDP might have Apart from this, we studied and summarized the correlation
serious impact on the Passenger Seat Kilometres. Even the between the GDP of a nation and the effect that it may have on
changes in Foreign Direct Investment policies, and the policies the aviation sector. This realization is amply supported by the
to increase the ease of doing business in India might have data collected. The concept of a lagging factor, which comes
serious implications in the Passenger demand with new low- into action due to the change in the economic conditions and

XVIII Annual International Conference of the Society of Operations Management (SOM 2014) 536
 Passenger Demand Forecasting of Indian Aviation Industry
the reflection of it in the various sectors differing by a certain
time period, in the effect of the GDP on the Passenger Seat
Kilometres was also crucial in forecasting.
The Forecast, itself, was done by Spreadsheet Modelling
Approach, and came out to be a linear increment in the
Passenger Seat Kilometres in the upcoming years. This
followed the previous increasing trend, and agreed well with
the data.
This study can be considered as an analysis and projection for
the required changes to be done in the future by various
organizations associated with the aviation industry. Moreover,
it is understandable that more research is required taking into
consideration the other independent variables, to exactly
forecast the passenger demand.
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