An Economic Analysis of Air Transport Demand in South Asia and Transaction Costs in Airline Distribution Channels

Abstract

This thesis evaluates air transport demand, in both freight and passenger markets, and associated transaction costs in airline distribution channels in South Asia. The research focused on three related areas: firstly the foundations of the causal relationships between air transport and economic growth in South Asia; secondly econometric evidence on the determinants of air transport specific to South Asian countries; and thirdly the measurement of transaction costs in airline distribution channels in the South Asian context with implications at the global level. Contrary to the existing academic literature, the first research study did not find a bidirectional causality between air transport and economic growth but found a long-run unidirectional causality flows from the economy to air transport. This confirms that spatial dimensions and regional context of low income and large populations are significant to air transport. Having established the direction of causality, the second research area of this thesis examined potential other determinants of air transport demand in South Asian countries. The methodological approach developed in this section incorporated fixed effects models as well as a three-step error correction mechanism approach to evaluate the impact of these determinants on aviation activity in both short-run and long-run. The third research component of this thesis identified, for the first time, the level of transaction costs in downstream distribution channels for airlines. Both direct and indirect measurement approaches were used to undertake this research as in theory, one could argue that the transaction cost prone environment of South Asia will not be able to cope with the expected growth. The results suggest that technological governance support systems enable the distribution to keep transaction costs low which suggests that ceteris paribus the system will continue to work despite the expected growth of aviation in this region.