Effect of Air Services Availability on

International Visitors to New Zealand

David Timothy Duval *

School of Business
University of Otago
PO Box 56
Dunedin
New Zealand
dduval@otago.ac.nz
Tel +64 3 479 5398
Fax + 64 3 479 9034

Aaron Schiff
Covec
Level 15 Qantas House
191 Queen Street
Auckland 1010
New Zealand
aaron.schiff@covec.co.nz
Tel +64 9 916 2012

* Corresponding author

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 Effect of Air Services Availability on
International Visitors to New Zealand

ABSTRACT

We examine the effects on international visitor arrivals of changes in the availability of

inbound air services to New Zealand. Models of visitor arrivals are used to measure whether

discrete changes in service availability had any statistically significant effect on visitor

arrivals from five different countries of origin after controlling for GDP and exchange rates.

The resulting effect is found to be mixed, with the existence of regional hubs and robust third-

country carriers apparently providing sufficient airlift for many visitors from countries

without non-stop air services. We outline the resulting implications for international airlift

policy.

Keywords: accessibility, tourism, New Zealand, air transport liberalisation, passenger air

travel, policy

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 Effect of Air Services Availability on International Visitors to New Zealand

1. Introduction

The relationship between tourism and international commercial air transport is both obvious

and significant (Bieger and Wittmer, 2006; Papatheodorou and Lei, 2006). Air service is a

critical determinant of the overall performance of a tourism destination. This may be

amplified in geographically remote destinations with limited air transport connectivity

and/or where certain inbound routes and sectors are commercially nonviable.

With a population of only 4.3 million, New Zealand received some 2.4 million international

short-term visitor arrivals in 2009 (Ministry of Tourism, 2009b). Their expenditure – at

approximately NZ$9.3 billion (Statistics New Zealand, 2009) – accounted for 16 percent of the

country’s total export earnings. Tourism thus forms a critical part of New Zealand’s economy.

While Air New Zealand offers the only non-stop or direct services for most key visitor

markets (with the exception of Australia and the United States), 16 other foreign carriers

bring traffic from other major international markets. For most of these foreign carriers,

however, New Zealand is at the end of a long ‘spoke’ and is not necessarily an integral part of

their network.

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Our objective in this paper is to examine the effects on international visitor arrivals of changes

in the availability of inbound air services to New Zealand. We do so by developing models of

past visitor arrivals that measure whether discrete changes in service availability had any

statistically significant effect on visitor arrivals from the various countries of origin after

controlling for GDP and exchange rates. We conclude by raising policy implications from our

empirical results, specifically the extent to which direct services from all major origin

markets, as a general policy directive, is necessary to maintain visitor arrivals.

New Zealand forms the focus in this paper because of its unique geographic position, which

is one of relative isolation to most major international tourism markets except Australia. This

means that almost all international visitors to New Zealand arrive by air, and it should be

relatively easy to detect the effect of changes in air services on international tourism,

compared to other destinations where alternative modes of transport are feasible. This

geographic isolation supports a relatively liberal approach to air access rights, a stated policy

of the New Zealand Government since 1985, in recognition of the importance of airlift for

tourism and commerce. A 1998 policy directive extended this by positioning the country as

one which ‚seeks to conclude with other countries the most liberal and flexible air services

arrangements possible, providing for freer access for international airlines and thereby for

increased competition among them‛ (Ministry of Transport, 1998).

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2. Literature review

Airlines function as a key vector of mobility for tourists. Raguraman (1997) emphasised

accessibility as a key element in the development of tourism. Accessibility and connectivity

are paramount for generating export earnings from international tourism. International air

services serve two fundamental purposes for tourism: (1) as a conduit for actual demand, and

(2) to help convert latent demand into actual demand.

A 2007 International Air Transport Association brief argues that the value of connectivity and

return on investment from aviation services is directly related to productivity and overall

economic development. The World Economic Forum’s 2009 assessment of the

competitiveness of travel and tourism included various measures of air transport

infrastructure (Ach and Pearce, 2009). Ach and Pearce (2009) suggest that a lack of air

transport infrastructure can contribute negatively to a region or country’s tourism

competitiveness. Oxera’s (2009) report for the United Kingdom Airport Operators Association

estimated that the aviation sector (inclusive of airports, airlines and other providers)

accounted for economic output of £8.8b and 141,000 jobs in the United Kingdom, as part of

wider wealth generators centred around trade, investment and connectivity.

Debate over the economic benefits of air services has recently intensified for several reasons.

First, the global recession of 2008/2009 saw significant capacity reductions in many markets.

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Second, the increasing attention paid to greenhouse gas emissions from aviation activities has

spawned competing interests in measuring value, each with the intent of demonstrating

which side of the equation should be privileged within policy circles: the raw economic value

of air services or the cost of negative externalities arising from associated emissions. Finally,

the volcanic events of April 2010 in Iceland served as a reminder to both the tourism and the

air transport industries that air service operations can be subject to sudden extreme events.

Swine flu (2008) and SARS (2004) are other examples.

Both the service and availability (frequency and capacity) of air services continue to play a

critical role in facilitating route and origin-destination traffic. Of interest to the New Zealand

market is the proliferation of Australian- and Asian-based low-cost carriers, some of which

(e.g., Air Asia X) are working toward long-haul service models. The impact of low-cost

carriers on tourism and wider economic development has attracted significant attention, and

several studies examine the wider value of air services to tourism. Papatheodorou and Lei

(2006), for example, used Britain as a case study to illustrate the impact of three key business

models (scheduled, charter and low-cost) on British regional airports, concluding that the

low-cost model has not been solely responsible for traffic growth. Graham and Dennis (2010)

investigated a decision by the Maltese government to incentivise new low-cost services. They

found that new services by Ryanair, easyJet and Vueling (among others) grew the market

beginning in 2007 from ports such as Luton, Pisa, and Dublin. Elsewhere, Donzelli’s (2010)

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work in southern Italy demonstrates that low-cost models have effectively de-seasonalised

arrivals patterns within an overall increase in passenger numbers.

There exists a significant literature on primarily US-based assessments of liberalisation and

the effect on passenger traffic. Clougherty et al’s (2001) empirical analysis of country-pair

markets involving Canada shows that the Canadian dual-designation policy (of, at the time,

Air Canada and Canadian Airlines International) increased Canadian carrier traffic volume as

well as total international visitor numbers. Warnock-Smith and Morrell (2008) investigated

whether liberalisation in the Caribbean has led to increased in passenger traffic. While

weighted real GDP exhibited a stronger coefficient, their measure of liberalisation (which

incorporated capacity and frequency, tariffs, fifth freedom rights, carrier designation and the

number of permitted access points) resulted in a traffic volume log increase of between 2.55%

and 3.02%. However, it is not clear to what extent these changes in visitor numbers were due

to increased availability of air services versus lower prices due to increased competition on

existing routes. Empirical modelling of the New Zealand inbound commercial air transport

market is limited currently to the work of Hazledine (2008) on market structure and

competition on the trans-Tasman market.

As indicated, New Zealand’s geographic position accounts for the country’s liberal policy

approach to air access (Abeyratne, 2007; Armstrong and Read, 2006; Kissling, 1998) with the

intent of maximising economic development, including inbound international tourism. This

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somewhat mirrors trends in the wider Asia-Pacific, including Australia (Quiggin, 1997;

Hodgkinson, 2006), India (Hooper, 1997, 1998) and more broadly the ASEAN regional

liberalisation initiative (Forsyth et al., 2006; Li, 1998). It also reflects wider trends among

island states to adopt liberal access approaches in order to secure access to visitor markets

(Abeyratne, 1999).

3. The New Zealand inbound tourism market

As New Zealand is largely a long-haul destination except for Australia, the pattern of

international arrivals generally relies on access via intermediate points. Exceptions where

non-stop services are available include the United States, Canada, Japan, China and Korea.

From other parts of the world, however, international travellers generally transit through

larger hubs such as Sydney, Hong Kong, Singapore and Los Angeles.

Figures from 2009 reveal over 2.4 million arrivals by air (which is 99.9% of total arrivals).

Arrivals into Auckland Airport account for over two-thirds of this total, highlighting its

significance as a major inbound port. Visitor origins are shown in Table 1. Some ports,

including Dunedin and Invercargill, have actively expanded or redeveloped their airways

and/or terminal infrastructure (Forsyth, 2002). While Francis and Lyon (2008) suggested that

regional airport development has been more or less successful, some airlines have only

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marginally supported direct international flights to regional destinations, opting to instead

favour network concentration in larger ports such as Christchurch and Auckland.

Table 1: International visitor arrivals to New Zealand (top 8 source markets)

1999 Proportion* 2009 Proportion*
Visitors Visitors
Australia 523,428 33% 1,082,680 44%
United Kingdom 200,250 12% 258,438 11%
USA 195,781 12% 197,792 8%
China 33,502 2% 102,259 4%
Japan 151,373 9% 78,426 3%
Germany 51,451 3% 64,564 3%
South Korea 66,581 4% 52,921 2%
Canada 32,971 2% 48,656 2%
TOTAL ARRIVALS 1,607,241 2,447,346
Note: * Proportion of all international visitors; Source: IVA Table 3 (Ministry of Tourism 2010)

In the past few years, the growth in arrivals has been steady from the Australian market yet

stagnant in most other markets, with the notable exception of China (Table 1). This reflects

several realities. Geography plays an important role both in securing Australia visitors but

also in retarding visitation from more distant markets such as the United Kingdom and

Germany. As well, New Zealand as a visitor destination faces significant challenges in Europe

and Asia given the plethora of alternative (and often cheaper) destinations on offer.

4. Empirical methodology and data

We have estimated the effects of changes in air service availability on international visitor

arrivals by analysing a number of examples where there has been a complete gain or loss of

direct services from specific countries over time. This omits flows from most of the major

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inbound markets, including the United Kingdom, Australia and the United States, as these

have had uninterrupted service over the past several decades.

Table 2 summarises the examples that we have been able to identify over the past thirty years.

Our objective in the empirical analysis is to estimate whether the introduction or loss of air

services between New Zealand and the other countries listed in Table 2 had a significant

effect on the number of international visitor arrivals from that country, controlling for other

economic factors that may affect the number of arrivals.

Table 2: Changes in New Zealand air service availability.

Country Airline(s) Direct services

available
Canada Air New Zealand Nov 85 – Feb 92
Sep 97 – Nov 98
Nov 07 – Current
Canadian Airlines Nov 85 – Apr 91
International Oct 97 – Dec 98
Chile LAN Airlines Jul 02 – Current
Mainland China Air New Zealand Nov 06 – Current
Air China Jul 00 – Mar 01
Indonesia Air New Zealand Sep 90 – Oct 97
Garuda Nov 85 – Nov 06
Indonesia
South Korea Air New Zealand Nov 93 – Jan 98
Korean Air Nov 93 – Current
Asiana Airlines Oct 03 – Mar 05
Taiwan Air New Zealand Aug 91 – Mar 06
EVA Airways Sep 94 – Aug 08
China Airlines Mar 00 – Oct 01
United Arab Emirates Emirates Aug 03 – Current

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For controlling variables we used measures of real GDP in the foreign country and the

exchange rate between the foreign currency and the New Zealand dollar. Quarterly

seasonally adjusted real GDP data was obtained for all countries in Table 2 except for China

and the United Arab Emirates, which could not be obtained and thus excluded from the

analysis. The GDP data were obtained from the online Organisation for Economic Co-

operation and Development (OECD) statistics database1, although the GDP data for Taiwan

were obtained from the National Statistics office of Taiwan.2 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 Statistics database of the

International Monetary Fund (IMF), except for Taiwan which were obtained from the

PACIFIC exchange rate service.3

For each country, total international visitor arrivals to New Zealand are recorded in the

International Visitor Arrivals (IVA) database of Statistics New Zealand. Monthly arrival

counts by origin and purpose of travel are available from January 1979, and these were

converted to a quarterly basis to be consistent with the GDP data in our analysis. Arrivals

from each country were split into ‘holiday’ and ‘other’ purposes of travel, to facilitate testing

1 stats.oecd.org
2 http://eng.stat.gov.tw/ct.asp?xItem=25763&CtNode=5347&mp=5
3 http://fx.sauder.ubc.ca
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whether the effects of service availability differ across different purposes of travel.4 In total

we have up to 124 observations for each origin / purpose combination. As GDP data for Chile,

Indonesia and Taiwan could not be obtained back to 1979, a shorter sample corresponding to

the period for which GDP data are available was used for these countries.

To capture the availability of services, a quarterly dummy variable was constructed for each

country, taking the value 1 if direct services were available on at least one airline for at least

two out of three months in the quarter, and taking the value 0 otherwise. Visitor arrivals to

New Zealand from most countries tend to follow a strong seasonal pattern, with greater

visitor numbers in the summer months. To allow for this, quarterly dummy variables were

also constructed.

We considered three different ways that service availability may affect visitor arrivals.

Formally, let be international visitor arrivals to New Zealand from country i for purpose j

= {Holiday, Other}, in quarter t. Similarly, let be real GDP in country i in quarter t, let

be the units of foreign currency per New Zealand dollar for country i in quarter t, let

be the service availability dummy variable for country i in quarter t, let , and be

dummy variables taking the value 1 in quarters 2, 3 and 4 respectively, and let be a

4 The ‘other’ category includes business, visiting friends and relatives, and all other non-holiday travel. Further segmentation
into multiple purposes was not feasible as visitor arrival estimates in the IVA are based on a sample of arrivals, and sample
sizes become too small for some countries if many visitor segments are defined.
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residual. Given these variables, we estimated the following three models using the quarterly

data:

(1)

(2)

(3)

Model 1 allows service availability to shift visitor arrivals by a constant amount. Model 2

allows service availability to change the coefficients on the GDP and exchange rate variables

so that, for example, the coefficient on GDP is when air service is not available and is

when service is available. Model 3 allows for both a shift of the intercept and a change

of the coefficients on GDP and exchange rates. The models were estimated using the natural

logarithm of arrivals, GDP and exchange rates, so the coefficients on the explanatory

variables can be interpreted as elasticities.

Given that all our data are time-series, we allowed for the possibility of serial correlation by

introducing an autoregressive error process if necessary. For example, with a first-order

autoregressive, or AR(1), error process, the residual is modelled as:

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where is a parameter and is an independent and identically distributed

random variable with zero mean and constant variance. Higher order autoregressive

processes include additional lags of the error term.

Our models were estimated including autoregressive terms where necessary to correct for

serial correlation. Serial correlation was identified using the Durbin-Watson statistic and

estimated autocorrelation and partial autocorrelation functions of the regression residuals.

All models were estimated in STATA 10.1.

5. Analysis

5.1 Canada

Table 3 shows the estimated regression results for Canada. In all cases the R2 value is high,

indicating a good fit. In most cases, coefficients on the variables involving the air service

dummy variable are statistically insignificant, except for the intercept shift for ‘other’ arrivals

which is weakly significant at the 10% level. The coefficient of 0.09 indicates that quarterly

‘other’ arrivals from Canada were approximately 9% higher when direct air services were

available compared to when services were unavailable, everything else equal.

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For Canada, the coefficients on GDP are highly significant and indicate that visitor arrivals

are relatively elastic with respect to GDP. Exchange rates are not significant in any of the

models.

Table 3: Canada regression results.

Variable Holiday Arrivals Other Arrivals

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant -6.62 -6.08 -6.20 **-12.86 ***-13.16 ***-13.42
(5.93) (5.93) (5.23) (5.32) (5.42) (4.79)
GDP ***1.26 **1.21 ***1.22 ***1.71 ***1.73 ***1.76
(0.48) (0.48) (0.42) (0.43) (0.44) (0.39)
ER -0.03 -0.08 -0.17 0.20 0.24 0.19
(0.21) (0.22) (0.24) (0.16) (0.17) (0.19)
D 0.06 4.41 *0.09 2.33
(0.05) (2.91) (0.05) (2.77)
GDP x D 0.01 -0.34 0.00 -0.18
(0.01) (0.23) (0.01) (0.22)
ER x D 0.34 0.51 -0.20 -0.10
(0.38) (0.41) (0.37) (0.38)
Q2 ***-1.25 ***-1.25 ***-1.25 ***-0.63 ***-0.62 ***-0.62
(0.07) (0.07) (0.07) (0.05) (0.05) (0.05)
Q3 ***-1.27 ***-1.27 ***-1.28 ***-0.63 ***-0.63 ***-0.63
(0.07) (0.07) (0.07) (0.07) (0.07) (0.06)
Q4 ***-0.28 ***-0.28 ***-0.28 -0.02 -0.01 -0.02
(0.06) (0.06) (0.06) (0.06) (0.06) (0.06)
AR(1) ***0.36 ***0.36 ***0.34 **0.19 **0.19 **0.18
(0.07) (0.07) (0.08) (0.08) (0.08) (0.08)
AR(3) ***0.28 ***0.28 ***0.28
(0.06) (0.06) (0.06)
AR(4) ***0.55 ***0.55 ***0.55 ***0.46 ***0.47 ***0.46
(0.07) (0.07) (0.07) (0.10) (0.10) (0.10)
R2 0.95 0.95 0.95 0.94 0.94 0.94
N 124 124 124 124 124 124
Standard errors in brackets.

*** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.

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5.2 Chile

Table 4 shows the estimated models for Chile. None of the variables involving air services

availability are significant for holiday arrivals. For other arrivals, the results from models 2

and 3 indicate that air services availability increases the sensitivity of arrivals from Chile to

changes in GDP and changes in the exchange rate. For example, using the results from model

2, the elasticity of other visitor arrivals from Chile with respect to GDP increases from 1.94

when air services are unavailable to 3.09 when services are available. Thus, provided the

Chilean economy is growing, air services availability will have a positive impact on non-

holiday arrivals from Chile. If Chile suffers a recession, arrivals may be adversely affected to

a greater extent in percentage terms if air services are available.

However, we note that many of the estimated coefficients in model 3 vary greatly from the

other estimated models. This instability may be due to the relatively small sample size, and

these results must be interpreted with caution.

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Table 4: Chile regression results.

Variable Holiday Arrivals Other Arrivals

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant ***-45.92 ***-42.94 ***-44.54 **-39.28 ***-36.53 -2.35
(10.22) (10.13) (11.55) (16.57) (8.65) (7.69)
GDP ***3.10 ***2.62 ***2.70 ***2.66 ***1.94 0.01
(0.51) (0.56) (0.63) (1.01) (0.60) (0.37)
ER 0.04 0.90 0.95 0.27 **1.85 **1.31
(0.83) (0.90) (0.90) (0.62) (0.82) (0.62)
D 0.55 3.16 -0.11 ***-60.52
(0.38) (18.74) (0.30) (11.70)
GDP x D 0.61 0.46 **1.15 ***4.41
(0.43) (1.04) (0.45) (0.57)
ER x D -1.63 -1.75 **-3.25 **-1.97
(1.22) (1.34) (1.29) (0.80)
Q2 ***-0.45 ***-0.45 ***-0.45 ***-0.21 **-0.20 ***-0.20
(0.10) (0.07) (0.08) (0.08) (0.08) (0.07)
Q3 ***-0.43 ***-0.43 ***-0.43 -0.10 -0.10 -0.10
(0.11) (0.11) (0.11) (0.10) (0.09) (0.08)
Q4 *-0.16 *-0.15 *-0.15 -0.05 -0.05 -0.06
(0.10) (0.08) (0.08) (0.09) (0.09) (0.07)
AR(1) *0.27
(0.14)
AR(2) **-0.32
(0.13)
AR(3) *0.29 *0.29 ***0.48 **0.42
(0.15) (0.15) (0.15) (0.18)
AR(4) ***-0.29 **-0.29 **-0.29 **-0.32
(0.11) (0.13) (0.13) (0.13)
R2 0.87 0.89 0.89 0.83 0.85 0.89
N 60 60 60 60 60 60
Standard errors in brackets.

*** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.

5.3 Indonesia

Table 5 shows the regression results for Indonesia. None of the variables involving air

services availability are significant in any of the models. In addition, the economic variables

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are also not significant in many cases. This is reflected in the lower R2 values for these models,

and suggests that other factors are driving international visitor arrivals from Indonesia.

Table 5: Indonesia regression results.

Variable Holiday Arrivals Other Arrivals

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant 8.19 8.87 -40.96 **-5.19 **-5.25 7.80
(6.67) (6.76) (38.28) (2.45) (2.44) (14.89)
GDP 0.31 0.77 3.92 ***0.93 *0.80 0.10
(0.53) (1.11) (2.50) (0.20) (0.47) (0.92)
ER ***-0.62 -1.39 -0.44 0.01 0.20 -0.24
(0.14) (1.69) (1.62) (0.04) (0.68) (0.84)
D -0.17 52.99 0.06 -13.35
(0.26) (40.14) (0.07) (15.02)
GDP x D -0.54 -3.94 0.14 0.86
(1.13) (2.67) (0.46) (0.94)
ER x D 0.79 -0.17 -0.20 0.24
(1.70) (1.63) (0.68) (0.84)
Q2 -0.25 -0.25 -0.27 **-0.12 **-0.12 **-0.12
(0.32) (0.33) (0.28) (0.05) (0.05) (0.05)
Q3 -0.25 -0.25 -0.29 ***-0.26 ***-0.26 ***-0.25
(0.20) (0.19) (0.19) (0.05) (0.05) (0.05)
Q4 ***0.77 ***0.77 ***0.75 ***0.15 ***0.15 ***0.16
(0.23) (0.23) (0.20) (0.05) (0.05) (0.05)
AR(4) ***0.48 ***0.48 ***0.43
(0.11) (0.11) (0.11)
R2 0.76 0.76 0.77 0.70 0.70 0.70
N 68 68 68 68 68 68
Standard errors in brackets.

*** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.

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5.4 South Korea

Table 6 shows the regression results for South Korea. There is weak evidence at the 10% level

that air services availability increases the sensitivity of holiday arrivals to changes in GDP

and the exchange rate. For other arrivals, there is a highly significant effect of air services

availability on either the intercept (model 1) or the coefficients on GDP and the exchange rate

(model 2), but only the exchange rate effect remains when these effects are combined in

model 3.

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Table 6: South Korea regression results.

Variable Holiday Arrivals Other Arrivals

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant ***-47.37 ***-58.40 ***-73.68 ***-29.51 ***-36.08 ***-31.63
(11.35) (15.46) (19.45) (5.45) (5.10) (7.49)
GDP ***3.67 ***3.81 ***4.38 ***2.06 ***2.10 ***1.92
(0.60) (0.66) (.70) (0.30) (0.25) (0.37)
ER ***-2.14 -0.76 .07 -0.29 *0.67 0.49
(0.48) (1.28) (1.45) (0.26) (0.39) (0.39)
D 0.82 44.49 ***0.72 -9.98
(0.66) (30.92) (0.26) (15.36)
GDP x D *0.77 -1.37 ***0.57 1.05
(0.42) (1.39) (0.20) (0.82)
ER x D *-2.24 *-2.95 ***-1.61 **-1.44
(1.28) (1.51) (0.60) (0.63)
Q2 ***-0.50 ***-0.51 ***-0.51 ***-0.38 ***-0.39 ***-0.39
(0.13) (0.13) (0.13) (0.09) (0.09) (0.09)
Q3 **-0.28 **-0.30 **-0.28 ***-0.24 ***-0.25 ***-0.26
(0.12) (0.12) (0.13) (0.07) (0.07) (0.07)
Q4 0.07 0.06 0.06 -0.07 -0.07 -0.07
(0.13) (0.12) (0.13) (0.07) (0.07) (0.07)
AR(1) ***0.44 ***0.47 ***0.43 ***0.32 ***0.32 ***0.31
(0.08) (0.08) (0.09) (0.08) (0.07) (0.07)
AR(2) ***0.34 ***0.34 **0.25 ***0.25 **0.23 **0.23
(0.10) (0.09) (0.10) (.09) (0.10) (0.11)
AR(4) ***0.24 ***0.22 ***0.23
(0.08) (0.08) (0.08)
R2 0.96 0.96 0.96 0.97 0.98 0.98
N 124 124 124 124 124 124
Standard errors in brackets.

*** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.

5.5 Taiwan

Table 7 shows the regression results for Taiwan. Across both types of arrivals and all models,

none of the coefficients on the variables involving air services availability are statistically

significant. GDP and exchange rates are highly significant in most of the models, and the

20
estimated coefficients on GDP indicate that arrivals from Taiwan are relatively sensitive to

changes in Taiwanese GDP.

Table 7: Taiwan regression results.

Variable Holiday Arrivals Other Arrivals

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant -19.39 -23.00 -24.50 **-18.82 *-14.66 *-14.86
(14.27) (14.50) (16.51) (8.62) (8.51) (8.53)
GDP **2.06 **2.23 **2.33 ***1.90 ***1.82 ***1.83
(0.97) (0.99) (1.13) (0.59) (0.58) (0.58)
ER **-0.78 -0.39 -0.37 -0.57 ***-1.56 ***-1.56
(0.32) (0.39) (0.39) (0.46) (0.52) (0.52)
D 0.23 4.01 0.28 1.21
(0.25) (11.96) (0.37) (25.12)
GDP x D 0.16 -0.14 -0.32 -0.41
(0.16) (0.89) (0.24) (1.76)
ER x D -0.75 -0.60 1.70 1.75
(0.82) (0.87) (1.14) (1.17)
Q2 -0.84 -0.85 -0.85 **-0.45 **-0.45 **-0.45
(0.54) (0.54) (0.55) (0.18) (0.20) (0.20)
Q3 *-1.17 *-1.16 *-1.17 -0.10 -0.09 0.09
(0.64) (0.65) (0.66) (0.20) (0.22) (0.22)
Q4 -0.12 -0.12 -0.12 -0.09 -0.04 -0.04
(0.72) (0.72) (0.75) (0.17) (0.19) (0.19)
AR(1) ***0.54 ***0.57 ***0.57 ***0.37 ***0.31 ***0.31
(0.10) (0.09) (0.09) (0.06) (0.07) (0.07)
AR(4) ***0.88 ***0.88 ***0.88 ***0.51 ***0.56 ***0.56
(0.05) (0.04) (0.05) (0.06) (0.06) (0.06)
AR(5) ***-0.47 ***-0.49 ***-0.49
(0.11) (0.10) (0.10)
R2 0.92 0.92 0.92 0.88 0.88 0.88
N 105 105 105 105 105 105
Standard errors in brackets.

*** Significant at 1% level; ** Significant at 5% level; * Significant at 10% level.

21
6. Discussion and conclusion

In summary, we found that air services availability has the following effects:

Weak evidence of an effect on ‘other’ arrivals from Canada.

Strong evidence that air services availability increases the sensitivity of ‘other’ arrivals

from Chile to changes in Chilean GDP and the exchange rate, although the results are

not stable across models.

Weak evidence that air services availability increases the sensitivity of holiday arrivals

from South Korea to changes in GDP and the exchange rate, and strong evidence that

availability has an effect on the level or sensitivity of ‘other’ arrivals from South Korea.

No evidence of an effect on Canada holiday, Chile holiday, Indonesia holiday and

‘other’, and Taiwan holiday and ‘other’ arrivals.

Overall, the evidence regarding the effect of air services availability is mixed. Where such an

effect does occur, it seems to be for purposes of travel other than holiday. It is possible that

holiday travellers have greater flexibility and are willing to use indirect routings if a direct

22
flight is not available. Other travellers, particularly business travellers, may be more sensitive

to the availability of convenient direct flights.

Across countries, the effects vary. All types of travellers from Indonesia and Taiwan appear

to be insensitive to the availability of direct air services to New Zealand, and there is only

weak evidence that visitors from Canada are sensitive to the availability of services. 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 Zhang, 2001). Canadian visitors, for example, can route from cities such as Toronto

and Vancouver to Los Angeles, Honolulu or San Francisco on Air Canada, and subsequently

cross the Pacific on Air New Zealand, both of which are current members of Star Alliance.

Where designated carriers from the countries in our sample are not operating non-stop or

direct services to New Zealand, arrivals are generally a result of third-country carriers

carrying fifth or sixth freedom traffic. South Korean visitors can currently undertake such a

Seoul–Singapore–Auckland routing on Singapore Airlines. Nonetheless, the results for South

Korea are somewhat difficult to explain, as absent direct services there are similar convenient

indirect routings available as for visitors from Taiwan. The results for Korea may therefore

reflect idiosyncratic characteristics of the Korean market, and show that there is no

straightforward answer to the question of whether the availability of services affects arrivals

from any particular country. Visitors from Chile, however, have less convenient routes to

23
New Zealand in the absence of direct flights, and this may explain the sensitivity of ‘other’

arrivals from Chile to service availability.

Our analysis also reveals potential implications for policy in New Zealand with respect to

securing additional or maintaining existing direct or non-stop air access. It would seem that

the existence of regional hubs and robust third-country carriers provide sufficient airlift for

visitors from countries without non-stop or direct air services. It may be comparatively

inefficient to embark upon a policy to secure non-stop or direct services from these countries

as our results suggest that these efforts would not result in a net growth in arrivals in most

cases. New Zealand’s liberal air rights approach, combined with the presence of larger third-

country airlines, are more critical factors in this regard.

Our results sit within a wider context regarding the extent of air access liberalisation policies

for a country such as New Zealand. Air access policies can have significant implications for

economic development more generally as well as tourism sectors specifically (Raguraman,

1997; Forsyth, 2001; Gillen et al., 2002). Given their influence on inbound travel flows, air

service arrangements, and the policies from which they are based, constitute an important

aspect of power relations and negotiations between multiple countries (Nayar, 1995). Air

service access policy represents a balancing act between consumer, tourism, and airline

interests (Forsyth, 2001). Requests for access from foreign airlines and air service arrangement

negotiations hinge on the desire by both parties to seek fair and equal opportunities

24
(Dempsey, 2008; Palmer and Nigh, 1986), the absence of which may restrain tourism

mobilities along a particular route (Duval and Macilree, in press). Our results suggest that, in

assessing the potential for equal opportunities, air access policy should consider the net effect

of the loss of direct and/or non-stop services and how this could influence reciprocal

arrangements and opportunities for a home carrier. As governments seek to retain or grow

inbound air services, access requests from international airlines must balance net social

benefit against any access rights secured for home carriers.

To conclude, air services obviously play a critical role in inbound visitor access to New

Zealand. However, there does not appear to be overwhelming evidence to suggest that future

efforts should focus on underserved markets (i.e., where direct services do not exist). At

present, it seems as though New Zealand’s liberal approach to access and connectivity is at

least partly responsible for ensuring the widest range possible of source markets for

international tourists. Future empirical research could involve the use of historic routing

factors (following, for example, Paleari et al., 2010) to measure the effect of alliances in route

provision, and these could incorporate shifts in network dynamics and structure. Further

alignment with studies of price elasticities of demand would add further insight.

25
Acknowledgements

The authors gratefully acknowledge funding from the New Zealand Ministry of Tourism and

the Foundation for Research, Science and Technology under the ‚Tourism and Aviation:

Critical Linkages‛ project. We are also very grateful to John Macilree, New Zealand Ministry

of Transport, for his assistance with determining the dates of air service changes used in the

empirical analysis.

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David Timothy Duval is Associate Professor in the School of Business at the University of

Otago. He holds interests in the areas of aviation management, economics and international

regulatory environments, and has written on issues of air transport emissions and the politics

and economics of government policy in air access.

Aaron Schiff is a Director of Covec, an Auckland-based economics consultancy. He has a

PhD in economics from the University of Auckland and recently completed a postdoctoral

fellowship at Hitotsubashi University in Japan. He specialises in theoretical and empirical

economic modelling, industrial organisation, and the economics of networks, intellectual

property, and aviation. He has consulted for a number of sectors in New Zealand and abroad

including telecommunications, banking, aviation and tourism.

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