Magazine article Journal of Services Research

Forecasting the Passenger Traffic Movement in Lufthansa Airlines: A Supply Chain Perspective

Magazine article Journal of Services Research

Forecasting the Passenger Traffic Movement in Lufthansa Airlines: A Supply Chain Perspective

Article excerpt

INTRODUCTION

Airlines industry across the globe is currently undergoing recession due to severe financial crisis faced by the major economies of the world. As per the estimates of International Air Transport Association (IATA), globally air travel has declined by 2.9% and 1.3% during September and October, 2008 respectively compared to the same months in the previous year. Segment-wise passenger traffic estimates provided by IATA further reveal that the Asia Pacific Carriers and North American Carriers registered a decline in passenger traffic flow by 6.1% and 0.9% respectively in October, 2008 compared to the same month in the previous year. African Carriers recorded the largest decline in traffic flow by 12.9% in October, 2008 compared to the same month in the previous year. The remaining segments namely European, Latin American and Middle Eastern Airlines experienced a moderate growth in its traffic flow to the tune of 1.8%, 4.5% and 3.5% respectively in October, 2008 (IATA International traffic statistics, 2008a, 2008b).

However, the financial crisis sweeping across the globe does not appear to have much negative impact on Lufthansa Airlines in respect of its passenger traffic flow till September, 2008 as revealed from the data provided in table 2a. A cursory observation into the table 2 further demonstrates that the passenger traffic flow in Lufthansa Airlines has been following a very systematic pattern since October, 2006 to September, 2008. There has been hardly any departure from the pattern observed in passenger traffic movement during the above period. Despite difficult market conditions, Lufthansa passenger Airlines was able to achieve a sales growth of 4.2% and 0.7% in September and October, 2008 respectively. It registered an increase in its passenger traffic flow in three major markets namely America (North/South), Asia/ Pacific, and Middle East & Africa both during September and October, 2008. American segment recorded a growth rate of 6.9% and 1% during September and October, 2008 respectively. Asia/Pacific region exhibited an increasing trend of 8.8% and 6% while Middle East and African region recorded an increasing trend of 2.5% and 11% during September and October, 2008 respectively. Only European market experienced a declining trend to the tune of 0.4% and 3% during the above periods (Lufthansa Investor Info, page 1, 2008).

The above phenomenon has motivated us to apply the most popular and well-established forecasting methods with a view to finding out the forecasted demand of passenger traffic movement of Lufthansa Airlines for future periods. The main objective of the paper is to find out the quarterly forecasted demand of passenger traffic flow in Lufthansa Airlines at a global level with the help of moving average (MA), exponential smoothing (ES), Holt's model and Winter's model by making use of published data pertaining to passenger traffic movement in Lufthansa Airlines. In addition, the paper has also attempted to find out the most suitable forecasting model for the above problem by comparing the forecasting errors of the above four forecasting models obtained through absolute error (AE), mean squared error (MSE), mean absolute deviations (MAD) and mean absolute percentage error (MAPE).

The following section provides a brief review of literature. Section 3 provides a brief overview of Lufthansa Airlines along with the recent data on passenger traffic movement. It contains a thorough analysis of forecasted passenger traffic movement by employing four forecasting methods and the comparative analysis of the same. Section 4 suggests few strategies for absorbing the varying nature of demand. The paper is concluded with a brief summary, potential contribution and limitations of the same.

REVIEW OF LITERATURE

Forecasting literature is replete with a number of studies ranging from simple time-series forecasting models to econometric models as also the forecasting models employing artificial intelligence techniques etc. …

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