There has been a lot of media coverage and discussion lately about airport privatisations across the developed and developing world. In speaking with other industry colleagues, it is evident that there is a need for market driven decisions when it comes to investment in airport infrastructure. It may seem obvious as a statement but often these decisions can be muddled with political pressures or aspirational management decisions. The need to understand the market then becomes a critical first step in assessing the viability of infrastructure development and/or investment. This usually manifests itself in a traffic forecast.
There is an abundance of material available on the methodologies that go into producing air traffic forecasts, or any business forecast for that matter. A quick internet search at the very least reveals the usual suspects: time-series projections, econometric models, and executive judgement; they seem to always make an appearance. To be clear, there is nothing wrong with these, or other, models deployed in the industry. Each has their own pros and cons and together they create a formidable approach to predicting what the future of the business looks like. In fact, they are the basic tools available to forecasters and will likely be that way well into the future. But often times the literature overlooks a very important aspect of traffic projections.
The old mantra “garbage in equals garbage out” certainly rings true in the forecasting realm and yet it is often the one area that is perhaps discussed the least. Fundamentally, a key component for traffic projections is a deep dive analysis of the market. How deep the analysis goes is a question that needs to be considered in the context of the size of the business and ultimately what the forecast will be used for, but the need for one is ever present.
A deep dive analysis for an example airport may cover, amongst others:
Historical passenger movements;
Passenger and capacity growth by route and by airline;
Airline capacity announcements
Key market segments, e.g. business, VFR, or a less generic segment such as FIFO;
Analysis of economic indicators, e.g. population growth;
Passenger survey data;
Growth at competitor or complementary airports in the region;
Growth of the national industry;
Assessment of local tourism infrastructure development; and
How the market reacts to the addition, or reduction, of airline capacity
The list could continue of course, customised to suit the market the airport is operating within. Alternatively, if the airport is small with limited passenger throughput and possibly more reliant on general aviation activity, then the deep dive would look much different. Once more, if the airport were a national gateway, the process may become much more complex.
Importantly, a deep dive analysis does need to be one-off event, produced every time a traffic forecast is required. It can be an ongoing exercise, updated as new data becomes available. New business intelligence tools on the market now make it easy to upload, track, and report on different data sets which is light years ahead of manually updating records in spreadsheets. It really should become an integral tool in the forecasters war chest.
So whilst a forecast is, in its truest sense, a projection of future traffic, or sales, or some other metric, it really needs to be a reflection of a deep understanding of the underlying market. When discussing forecasting techniques, the conversation needs to extend beyond the growth rates and include the fundamental make-up of the market that is being projected.