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Abstract

With single- and multi-segment market data, this paper used a heteroskedasticity-adjusted instrumental variable technique to explore the determinants of air passenger service. The results showed that price played a more prominent role than income in both single- and multi-segment markets. The results further indicated that demand of air passengers is price elastic and rises as distance increases. We found evidence that population, tourism, and business factors were significant predictors of demand. Tourism has a larger impact than the local Professional Scientific Technical (PST) industry earnings on airline demand in single-segment markets, while the inverse relationship is found in multi-segment markets. Based on these results, policymakers should focus on continuation, growth, and improvement of their air transportation infrastructure in metropolitan areas that have a high demand for business travel as well as vacation travel.

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