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Outlook for Commercial Aircraft 1995-2014

Outlook for Commercial Aircraft 1995-2014. McDonnell Douglas (Made in 1995). Executive Summary. By 2014, the world’s passenger jet fleet to be 18,600 aircraft 13,600 new aircraft will be needed, valued at $1.1 trillion . Aircraft demand forecasts require passenger demand forecasts

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Outlook for Commercial Aircraft 1995-2014

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  1. Outlook for Commercial Aircraft1995-2014 McDonnell Douglas (Made in 1995)

  2. Executive Summary • By 2014, the world’s passenger jet fleet to be 18,600 aircraft • 13,600 new aircraft will be needed, valued at $1.1 trillion. • Aircraft demand forecasts require passenger demand forecasts • Passenger demand forecasts require income and price forecasts

  3. Income and Price Forecasts • U.S.Real GDP will grow at 2.8% annually • Real passenger yields to decrease 1.35% annually

  4. U.S. Model of Traffic1970-1994

  5. Variable in Passenger Demand Model RPK = Revenue Passenger Kilometers (in thousands) one passenger traveling one kilometer RUSGDP = U.S. Gross Domestic Product (GDP) (in $bill.) Consumer Price Index RYIELD = Real Yields = (Passenger Revenues/CPI) Revenue Passenger Kilometers LRPK = logarithm of Revenue Passenger Kilometers LRUSGDP = logarithm of Real U.S. GDP LRYIELD = logarithm of Real Yields Deregulation = 0 Before 1978 (Air Passenger Deregulation Act) 1 After 1978

  6. U.S. Model of Traffic1970-1994 • Q = 2752 (RUSGDP)1.48(Real Yields)-0.36Exp(.10D) • t = 14.04 t=-3.26 t=3.60 • R-Squared = 99.5 % • Q = U.S. revenue passenger-kilometers • RUSGDP = real U.S. gross domestic product • Real Yields = Prices in $ per revenue passenger kilometer • D = 1 for deregulation year and 0 otherwise

  7. The income elasticity is estimated to be 1.48. A ten-percent increase in income increases passenger travel by 14.8 percent The price elasticity is -0.36. Aggregate demand is price inelastic. Remember, this is not an individual airline’s price elasticity. A ten percent reduction in real fares increases demand by 3.6% Deregulation increases demand by 10.5% The t-values are greater than 2 indicating that each elasticity estimate is statistically significant The R-Squared statistic indicates that the 99.5% of the variation of the ln RPK about its mean value is explained by the model. The overall model is statistically significant.

  8. MINITAB Results: Regressing the Log of Rev. Pass. Kilometers on the Log of Real USGDP, the Log of Real Passenger Yields, and a Deregulation Dummy Variable (0=without Dereg and 1=with Dereg.) • The regression equation is • LRPK = 8.09 + 1.46 LRUSGDP - 0.360 LRYIELD + 0.117 DEREG • Predictor Coef Stdev t-ratio p . • Constant 8.088 1.123 7.20 0.000 • LRUSGDP 1.4623 0.1079 13.55 0.000 • LRYIELD -0.3602 0.1121 - 3.21 0.004 • DEREG 0.11712 0.02475 4.73 0.000 • s = 0.03089 R-sq = 99.5% R-sq(adj) = 99.4% • Analysis of Variance • SOURCE DF SS MS F p • Regression 3 3.7414 1.2471 1307.09 0.000 • Error 21 0.0200 0.0010 • Total 24 3.7615 • Durbin-Watson statistic = 1.21

  9. U.S. Passenger Traffic Growth is forecasted at 4.2% for 1994-2014 • Passenger revenue yields will change by -1.35%North America economic growth is 2.8% • Using the estimated elasticities and assumed growth rates for income and prices, traffic will grow by approximately:1.48*(2.8%) + (-0.36)*(-1.35%) = 4.63%Income Elasticity Price Elasticity • So as not to be overly optimistic: lower to 4.2%

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