A conceptual model for demand forecasting and service positioning in the airline industry

Purpose – The main purpose of this paper is to develop a traffic demand forecasting model specifically on international sectors from the USA. Also, in this paper, the authors formulate the service positioning matrix (SPM) that enables airlines to accurately position their services and improve their process efficiency. Design/methodology/approach – In this paper, the authors explore international sectors and present a traffic demand model specifically for the same. The distribution of demand is assumed to follow a normal distribution and non‐service variables are introduced in the model. The behavior of the passenger has been captured by deriving the zonal income function. The variables have been drawn from microeconomic theory and the traditional gravity model of physics. The key innovations of the paper are fusion of the gravity model and microeconomic theory to develop the traffic demand model, and transformation of income to zonal income by deriving the aggregate zonal demand function; and development of a service positioning matrix for the airline industry. Findings – In this paper, first, the authors have presented a conceptual model for demand forecasting through usage of zonal income. Second, in recognition of the value add the firm receives by identifying the nature of service and derived customer satisfaction levels, the authors have presented the SPM – a framework to help service providers to position themselves on any one of the four defined states. The empirical work is underway to solidify the conceptions and would provide a robust route demand forecasting model for international route contemplation for airlines operating from the USA and a service positioning matrix. Originality/value – Although many airline companies and professional bodies are involved in developing forecasts of air transport demand, detailed analysis of the characteristics of demand for air transport over long‐haul or international routes are less researched. This paper attempts to provide a framework for the airlines to forecast demand specifically on international routes operated from major metros of the USA and position their services by designing the service positioning matrix. The model fuses concepts from physics and micro‐economics to enhance the forecasting capabilities. Major benefits include route contemplation, effective fleet scheduling, decisions on aircraft and fuel purchases, improving service efficiency and developing optimal fare policies.