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Journal of Air Transport Management 17 (2011) 175e180 Contents lists available at ScienceDirect Journal of Air Transport Management journal homepage: www.elsevier.com/locate/jairtraman Effect of air services availability on international visitors to New Zealand David Timothy Duval a, b, *, Aaron Schiff c a Faculty of Business and Economics, University of Winnipeg, Winnipeg, Manitoba, Canada b School of Business, University of Otago, Dunedin 9014, New Zealand c Covec, 191 Queen Street, Auckland 1010, New Zealand a b s t r a c t Keywords: We examine the effects of discrete changes in the availability of direct air services on the number of Aviation and tourism international visitor arrivals to New Zealand. We consider five different countries of origin and control New Zealand aviation for GDP and exchange rates. The results are mixed, suggesting that regional hubs and robust third- Air transport liberalisation Passenger air travel country carriers provide sufficient airlift for many visitors from countries without direct air services to New Zealand. We outline the resulting implications for international air services policy. Ó 2010 Elsevier Ltd. All rights reserved. 1. Introduction New Zealand is the focus in the paper because of its geographic position. It is relatively isolated from most major international The relationship between tourism and international commercial visitor markets except Australia and almost all international visitors air transport is significant. Air service is often a critical determinant to New Zealand arrive by air. This isolation supports a relatively of the overall performance of a tourism destination. This may be liberal approach to air access rights, which has been a stated policy amplified in geographically remote destinations with limited air of the New Zealand Government since 1985. A 1998 policy directive transport connectivity. It may also be important when certain extended this by positioning the country as one which “seeks to inbound routes and sectors are commercially nonviable. conclude with other countries the most liberal and flexible air With a population of only 4.3 million, New Zealand received services arrangements possible, providing for freer access for some 2.4 million international short-term visitor arrivals in 2009 international airlines and thereby for increased competition among (Ministry of Tourism, 2009). Their expenditure e at approximately them” (Ministry of Transport, 1998). NZ$9.3 billion (Statistics New Zealand, 2009) e accounted for 16% of the country’s export earnings. Tourism thus forms a significant 2. Background part of New Zealand’s economy. While Air New Zealand offers the only non-stop or direct services for most key visitor markets (with Airlines are a key vector of mobility for tourists. Raguraman the exceptions of Australia and the United States), 16 other foreign (1997) emphasised accessibility as a key element in the develop- airlines bring visitors from other international markets. For most of ment of tourism, and accessibility and connectivity are paramount these, New Zealand is at the end of a long ‘spoke’ and is not for generating tourism export earnings. International air services necessarily an integral part of their network. are a conduit for actual demand and help convert latent tourism This paper examines the effects on international visitor arrivals demand into actual demand. of changes in the availability of direct air services to New Zealand. The World Economic Forum’s 2009 assessment of the compet- We develop models of visitor arrivals that test whether discrete itiveness of travel and tourism included various measures of air changes in service availability had any statistically significant effect transport infrastructure. Ach and Pearce (2009) suggest that a lack on visitor arrivals from various countries of origin after controlling of air transport infrastructure can contribute negatively to a region for GDP and exchange rates. We conclude by raising policy impli- or country’s tourism competitiveness. Oxera’s (2009) report for the cations from our empirical results. In particular, we examine UK Airport Operators Association estimated that the aviation sector whether a policy directive of seeking direct services from all major (inclusive of airports, airlines and other providers) accounted for origin markets is necessary to maintain visitor arrivals. economic output of £8.8 billion and 141,000 jobs in the UK, as part of wider wealth generators centred around trade, investment and * Corresponding author. Faculty of Business and Economics, University of Win- connectivity. nipeg, Winnipeg, Manitoba, Canada. Debate over the economic benefits of air services has intensi- E-mail address: dtduval@gmail.com (D.T. Duval). fied recently. There are several reasons for this. First, the global 0969-6997/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2010.12.006
176 D.T. Duval, A. Schiff / Journal of Air Transport Management 17 (2011) 175e180 recession of 2008/2009 saw significant capacity reductions in many Table 1 markets. Second, the increasing attention toward greenhouse gas International visitor arrivals to New Zealand (top eight source markets). emissions from aviation has spawned competing interests in 1999 Visitors Proportiona 2009 Visitors Proportiona measuring value. These debates balance the raw economic value of Australia 523,428 33% 1,082,680 44% air services against the cost of negative externalities arising from UK 168,271 10% 258,438 11% associated emissions. Finally, the volcanic events of April 2010 in US 180,881 11% 197,792 8% China 23,241 1% 102,259 4% Iceland served as a reminder to both the tourism and the air Japan 147,345 9% 78,426 3% transport industries that air service operations can be subject to Germany 46,243 3% 64,564 3% sudden extreme events. Swine flu (2008) and SARS (2004) are other South Korea 43,234 3% 52,921 2% examples. Canada 33,296 2% 48,656 2% The frequency and capacity of air services continue to play Total Arrivals 1,607,241 2,447,346 a critical role in facilitating route and originedestination traffic. Of Source: New Zealand International Visitor Arrivals (Ministry of Tourism, 2010). a interest to the New Zealand market is the proliferation of Austra- Proportion of all international visitors. lian- and Asian-based low-cost (and potentially long-haul) carriers. Several studies examine the wider value of air services to tourism. In 2009, New Zealand received over 2.4 million international Papatheodorou and Lei (2006), for example, used Britain as a case visitor arrivals by air. Visitor origins are shown in Table 1. Arrivals study to illustrate the impact of three key business models from Australia have steadily increased in recent years. International (scheduled, charter and low-cost) on British regional airports, arrivals have been stagnant from most other markets, with the concluding that the low-cost model has not been solely responsible notable exception of China (Table 1). This reflects several realities. for traffic growth. Graham and Dennis (2010) investigated a deci- Geography plays an important role both in securing Australia visi- sion by the Maltese government to incentivise new low-cost tors but also in retarding visitation from more distant markets such services. They found that new services by Ryanair, easyJet and as the UK and Germany. As well, New Zealand as a visitor desti- Vueling (among others) grew the market beginning in 2007 from nation faces significant challenges given the numerous alternative ports such as Luton, Pisa, and Dublin. Elsewhere, Donzelli’s (2010) destinations on offer for visitors from Europe and Asia. work in southern Italy demonstrates that low-cost models have effectively de-seasonalised arrivals patterns within an overall 4. Empirical methodology and data increase in passenger numbers. There exists a significant body of work on primarily US-based Accessibility and connectivity are integral elements in New assessments of liberalisation and the effect on passenger traffic. The Zealand’s international airlift. The absence of air services would empirical analysis by Clougherty et al. (2001) of country-pair thus be cause for concern, although a precise measurement of this markets involving Canada shows that the Canadian dual-designa- has not been undertaken. Given the country’s isolation, we contend tion policy increased Canadian carrier traffic volume and interna- that it should be relatively easy to detect the effect of changes in air tional visitor numbers. Warnock-Smith and Morrell (2008) services on international tourism to New Zealand, compared to investigated whether liberalisation in the Caribbean has led to other destinations where alternative modes of transport (e.g. rail or increase in passenger traffic. While weighted real GDP exhibited sea) are feasible. a stronger coefficient, their measure of liberalisation (which The hypothesis we test is that availability of direct or non-stop incorporated capacity and frequency, tariffs, fifth freedom rights, air service from a foreign country to New Zealand has a positive carrier designation and the number of permitted access points) effect on the number of visitor arrivals from that country, every- resulted in a traffic volume log increase of between 2.55% and thing else equal. As described below, we test various forms of this 3.02%. It is not clear to what extent these changes in visitor hypothesis and estimate the effects of changes in air service numbers were due to increased availability of air services versus availability on international visitor arrivals by analysing a number lower prices due to increased competition on existing routes. of examples where there has been a complete gain or loss of direct Empirical modelling of the New Zealand inbound commercial air or non-stop services from specific countries over time. Table 2 transport market is limited currently to the work of Hazledine summarises the examples that we have been able to identify over (2008) on market structure and competition on the trans-Tasman the past thirty years. market. As indicated, New Zealand’s geographic position accounts for Table 2 the country’s liberal policy approach to air access (Armstrong and Discrete changes in New Zealand air service availability. Read, 2006). The intent is to promote economic development, Country Airlines Direct or non-stop which includes international tourism. This somewhat mirrors services available trends in the wider Asia-Pacific, including Australia (Hodgkinson, Canada Air New Zealand Nov 85eFeb 92 2006), India (Hooper, 1998) and more broadly the ASEAN regional Sep 97eNov 98 liberalisation initiative (Forsyth et al., 2006). It also reflects wider Nov 07eCurrent trends among island states to adopt liberal access approaches to Canadian Airlines Nov 85eApr 91 secure access to visitor markets. International Oct 97eDec 98 Chile LAN Airlines Jul 02eCurrent Mainland China Air New Zealand Nov 06eCurrent 3. The New Zealand inbound tourism market Air China Jul 00eMar 01 Indonesia Air New Zealand Sep 90eOct 97 With the exception of the Australian market, New Zealand is Garuda Indonesia Nov 85eNov 06 South Korea Air New Zealand Nov 93eJan 98 largely a long-haul destination. The pattern of international arrivals Korean Air Nov 93eCurrent thus generally relies on access via intermediate points. Major Asiana Airlines Oct 03eMar 05 markets where non-stop services are available include the United Taiwan Air New Zealand Aug 91eMar 06 States, Canada, Japan, China and Korea. From other parts of the EVA Airways Sep 94eAug 08 world, however, international travellers generally transit through China Airlines Mar 00eOct 01 United Arab Emirates Emirates Aug 03eCurrent hubs such as Sydney, Hong Kong, Singapore and Los Angeles.
D.T. Duval, A. Schiff / Journal of Air Transport Management 17 (2011) 175e180 177 Our objective in the empirical analysis is to estimate whether the Table 3 introduction or loss of air services between New Zealand and Canada regression results. the other countries listed in Table 2 had a significant effect on the Variable Holiday Arrivals Other Arrivals number of international visitor arrivals from that country, controlling Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 for other economic factors that may affect the number of arrivals. Constant 6.62 6.08 6.20 12.86** 13.16*** 13.42*** While potentially important for understanding service choice, GDP 1.26*** 1.21** 1.22*** 1.71*** 1.73*** 1.76*** consumer-centred factors, such as prices and the effects of marketing ER 0.03 0.08 0.17 0.20 0.24 0.19 were not included in our modelling as reliable data on such variables D 0.06 4.41 0.09* 2.33 GDPxD 0.01 0.34 0.00 0.18 do not exist. In particular, as we have not controlled for marketing ERxD 0.34 0.51 0.20 0.10 effects, our estimates of the effect of the introduction of a new air Q2 1.25*** 1.25*** 1.25*** 0.63*** 0.62*** 0.62*** service on visitor arrivals also incorporate the effects of any adver- Q3 1.27*** 1.27*** 1.28*** 0.63*** 0.63*** 0.63*** tising undertaken by the airline to promote the route. Q4 0.28*** 0.28*** 0.28*** 0.02 0.01 0.02 For controlling variables we used measures of real GDP in the AR(1) 0.36*** 0.36*** 0.34*** 0.19** 0.19** 0.18** AR(3) 0.28*** 0.28*** 0.28*** foreign country and the exchange rate between the foreign AR(4) 0.55*** 0.55*** 0.55*** 0.46*** 0.47*** 0.46*** currency and the New Zealand dollar. Quarterly seasonally adjusted real GDP data was obtained for all countries in Table 2 except for R 2 0.95 0.95 0.95 0.94 0.94 0.94 China and the United Arab Emirates, which could not be obtained N 124 124 124 124 124 124 and thus these countries were excluded from the analysis. The GDP *** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level. data were obtained from the online Organisation for Economic Co-operation and Development (OECD) statistics database, except Taiwan, which were obtained from the National Statistics office of Ati;j ¼ a þ bGDPit þ gERti þ dDti þ q1 Q2t þ q2 Q3t þ q3 Q4t þ eti;j (1) Taiwan. Quarterly average exchange rates were also obtained and expressed as units of foreign currency per New Zealand dollar. Exchange rate data were obtained from the International Financial Ati;j ¼ a þ b1 GDPit þ b2 Dti GDPit þ g1 ERti þ g2 Dti ERti þ q1 Q2t Statistics database of the International Monetary Fund, except for þ q2 Q3t þ q3 Q4t þ eti;j (2) Taiwan which were obtained from the PACIFIC exchange rate service. For each origin country, international visitor arrivals to New Ati;j ¼ a þ b1 GDPit þ b2 Dti GDPit þ g1 ERti þ g2 Dti ERti þ dDti þ q1 Q2t Zealand are recorded in the International Visitor Arrivals (IVA) þ q2 Q3t þ q3 Q4t þeti;j (3) database of Statistics New Zealand. Monthly arrival counts by origin and purpose of travel are available from January 1979, and these Model 1 allows service availability to shift visitor arrivals by were converted to quarterly totals to be consistent with the GDP a constant amount. Model 2 allows service availability to change data in our analysis. Arrivals from each country were split into the coefficients on the GDP and exchange rate variables so that, for ‘holiday’ and ‘other’ purposes of travel, to facilitate testing whether example, the coefficient on GDP is b1. when air service is not the effects of service availability differ across different purposes of available and is b1þb2 when service is available. Model 3 allows for travel.1 In total we have up to 124 observations for each origin/ both a shift of the intercept and a change of the coefficients on GDP purpose combination.2 and exchange rates. The models were estimated using the natural To capture the availability of services, a quarterly dummy vari- logarithm of arrivals, GDP and exchange rates, so the coefficients on able was constructed for each country, taking the value one if direct the explanatory variables can be interpreted as elasticities. services were available on at least one airline for at least two out of Given that all our data are time-series, we allowed for the three months in the quarter, and taking the value zero otherwise. possibility of serial correlation by introducing an autoregressive Visitor arrivals to New Zealand from most countries tend to follow error process if necessary. For example, with a first-order autore- a strong seasonal pattern, with greater visitor numbers in the gressive, or AR(1), error process, the residual is modelled as: summer months. To allow for this, quarterly dummy variables were also constructed. eti;j ¼ ret1 t i;j þ 3i;j We considered three different ways that service availability may where 1
178 D.T. Duval, A. Schiff / Journal of Air Transport Management 17 (2011) 175e180 the intercept shift for ‘other’ arrivals which is weakly significant at Table 5 the 10% level. The coefficient of 0.09 indicates that quarterly ‘other’ Indonesia regression results. arrivals from Canada were approximately 9% higher when direct air Variable Holiday Arrivals Other Arrivals services were available compared to when services were unavail- Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 able, everything else equal. Constant 8.19 8.87 40.96 5.19** 5.25** 7.80 For Canada, the coefficients on GDP are highly significant and GDP 0.31 0.77 3.92 0.93*** 0.80* 0.10 indicate that visitor arrivals are relatively elastic with respect to ER 0.62*** 1.39 0.44 0.01 0.20 0.24 GDP. Exchange rates are not significant in any of the models. D 0.17 52.99 0.06 13.35 GDPxD 0.54 3.94 0.14 0.86 ERxD 0.79 0.17 0.20 0.24 5.2. Chile Q2 0.25 0.25 0.27 0.12*** 0.12*** 0.12*** Q3 0.25 0.25 0.29 0.26*** 0.26*** 0.25*** Q4 0.77*** 0.77*** 0.75*** 0.15*** 0.15*** 0.16*** Table 4 shows the estimated models. None of the variables AR(4) 0.48*** 0.48*** 0.43*** involving air services availability are significant for holiday arrivals. For other arrivals, the results from models 2 and 3 indicate that air R2 0.76 0.76 0.77 0.70 0.70 0.70 N 68 68 68 68 68 68 services availability increases the sensitivity of arrivals from Chile to changes in GDP and changes in the exchange rate. For example, *** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level. using the results from model 2, the elasticity of other visitor arrivals from Chile with respect to GDP increases from 1.94 when air the exchange rate. For other arrivals, there is a highly significant services are unavailable to 3.09 when services are available. Thus, effect of air services availability on either the intercept (model 1) or provided the Chilean economy is growing, air services availability the coefficients on GDP and the exchange rate (model 2), but only will have a positive impact on non-holiday arrivals from Chile. If the exchange rate effect remains when these effects are combined Chile suffers a recession, arrivals may be adversely affected to in model 3. a greater extent in percentage terms if air services are available. South Korean visitors have many options for travelling to New Visitors from Chile have less convenient routes to New Zealand in Zealand via hubs in Singapore and Hong Kong. Therefore, the the absence of direct flights, and this may explain the sensitivity of results for South Korea are interesting, as absent direct services ‘other’ arrivals from Chile to service availability. However, we note that there are similar convenient indirect routings available as for visi- many of the estimated coefficients in model 3 vary greatly from the tors from Taiwan. The results for Korea may therefore reflect idio- other estimated models. This instability may be due to the relatively syncratic characteristics of the Korean market, and show that there small sample size, and these results must be interpreted with caution. is no straightforward answer to the question of whether the availability of services affects arrivals from any particular country. 5.3. Indonesia 5.5. Taiwan Table 5 shows the regression results for Indonesia. None of the variables involving air services availability are significant in any of Table 7 shows the regression results for Taiwan. Across both the models. In addition, the economic variables are also not types of arrivals and all models, none of the coefficients on the significant in many cases. This is reflected in the lower R2 values for variables involving air services availability are statistically signifi- these models, and suggests that other factors are driving interna- cant. GDP and exchange rates are highly significant in most of the tional visitor arrivals from Indonesia. models, and the estimated coefficients on GDP indicate that arrivals from Taiwan are relatively sensitive to changes in Taiwanese GDP. 5.4. South Korea 5.6. Discussion Table 6 shows the regression results for South Korea. There is weak evidence at the 10% level that air services availability Overall, the evidence regarding the effect of air services avail- increases the sensitivity of holiday arrivals to changes in GDP and ability is mixed. Where such an effect does occur, it seems to be for purposes of travel other than holiday. It is possible that holiday Table 4 Chile regression results. Table 6 Variable Holiday Arrivals Other Arrivals South Korea regression results. Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Variable Holiday Arrivals Other Arrivals Constant 45.92*** 42.94*** 44.54*** 39.28** 36.53*** 2.35*** Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 GDP 3.10*** 2.62*** 2.70*** 2.66*** 1.94*** 0.01 Constant 47.37*** 58.40*** 73.68*** 29.51*** 36.08*** 31.63*** ER 0.04 0.90 0.95 0.27 1.85** 1.31** GDP 3.67*** 3.81*** 4.38*** 2.06*** 2.10*** 1.92*** D 0.55 3.16 0.11 60.52*** ER 2.14*** 0.76 0.70 0.29 0.67* 0.49 GDPxD 0.61 0.46 1.15** 4.41** D 0.82 44.49 0.72*** 9.98 ERxD 1.63 1.75 3.25** 1.97** GDPxD 0.77* 1.37 0.57*** 1.05 Q2 0.45*** 0.45*** 0.45*** 0.21*** 0.20** 0.20*** ERxD 2.24* 2.95* 1.61*** 1.44** Q3 0.43*** 0.43*** 0.43*** 0.10 0.10 0.10 Q2 0.50*** 0.51*** 0.51*** 0.38*** 0.39*** 0.39*** Q4 0.16* 0.15* 0.15* 0.05 0.05 0.06 Q3 0.28** 0.30** 0.28** 0.24*** 0.25*** 0.26*** AR(1) 0.27* Q4 0.07 0.06 0.06 0.07 0.07 0.07 AR(2) 0.32** AR(1) 0.44*** 0.47*** 0.43*** 0.32*** 0.32*** 0.31*** AR(3) 0.29* 0.29* 0.48*** 0.42** AR(2) 0.34*** 0.34*** 0.25** 0.25*** 0.23** 0.23** AR(4) 0.29*** 0.29** 0.29** 0.32** AR(4) 0.24*** 0.22*** 0.23*** R2 0.87 0.89 0.89 0.83 0.85 0.89 R2 0.96 0.96 0.96 0.97 0.98 0.98 N 60 60 60 60 60 60 N 124 124 124 124 124 124 *** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level. *** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.
D.T. Duval, A. Schiff / Journal of Air Transport Management 17 (2011) 175e180 179 Table 7 Our results sit within a wider context regarding the extent of Taiwan regression results. liberalisation of access policies. Air access policies can have signif- Variable Holiday Arrivals Other Arrivals icant implications for economic development more generally as Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 well as tourism sectors specifically. Given their influence on inbound travel flows, air service arrangements, and the policies on Constant 19.39 23.00 24.50 18.82* 14.66* 14.86* GDP 2.06** 2.23** 2.33** 1.90*** 1.82*** 1.83*** which they are based, constitute an important aspect of power ER 0.78** 0.39 0.37 0.57 1.56*** 1.56*** relations and negotiations between multiple countries. Air service D 0.23 4.01 0.28 1.21 access policy represents a balancing act between consumer, GDPxD 0.16 0.14 0.32 0.41 tourism, and airline interests. Requests for access from foreign ERxD 0.75 0.60 1.70 1.75 Q2 0.84 0.85 0.85 0.45** 0.45** 0.45** airlines and air service arrangement negotiations hinge on the Q3 1.17* 1.16* 1.17* 0.10 0.09 0.09 desire by both parties to seek fair and equal opportunities the Q4 0.12 0.12 0.12 0.09 0.04 0.04 absence of which may restrain tourism mobilities along a particular AR(1) 0.54*** 0.57*** 0.57*** 0.37*** 0.31*** 0.31*** route (Duval and Macilree, in press). Our results suggest that, in AR(4) 0.88*** 0.88*** 0.88*** 0.51*** 0.56*** 0.56*** assessing the potential for equal opportunities, air access policy AR(5) 0.47*** 0.49*** 0.49*** should consider the net effect of the loss of direct and/or non-stop R2 0.92 0.92 0.92 0.88 0.88 0.88 services and how this could influence reciprocal arrangements and N 105 105 105 105 105 105 opportunities for a home carrier. *** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level. To conclude, air services obviously play a critical role in inbound visitor access to New Zealand. However, there does not appear to be strong evidence to suggest that future efforts should focus on travellers have greater flexibility and are willing to use indirect underserved markets (i.e., where direct services do not exist). At routings if a direct flight is not available. Other travellers, particu- present, it seems as though New Zealand’s liberal approach to access larly business travellers, may be more sensitive to the availability of and connectivity is at least partly responsible for ensuring the convenient direct flights. widest range possible of source markets for international tourists. Visitors from all of these countries have very good connectivity options to New Zealand through regional hubs in Australia, Asia and North America, with some utilising global alliances (Oum and Acknowledgements Zhang, 2001). Canadian visitors, for example, can route from cities such as Toronto and Vancouver to Los Angeles, Honolulu or San The authors gratefully acknowledge funding from the New Francisco on Air Canada, and subsequently cross the Pacific on Air Zealand Ministry of Tourism and the Foundation for Research, New Zealand, both of which are current members of Star Alliance. Science and Technology under the Tourism and Aviation: Critical Given the existence of these alternatives, our results suggest Linkages project. We are also very grateful to John Macilree, New that the hypothesis that non-stop or direct air service availability Zealand Ministry of Transport, for his assistance with determining increases visitor arrivals does not hold in most cases. 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