Analyzing Air Passenger Flows between New Zealand’s Small Regions and Australia — A Gravity Model

Due to the geographic location of Australia and New Zealand, air transport is the dominant mode of travel between the two nations and to and from the rest of the world. While the trans- Tasman air passenger market between the two countries has grown over the last 20 years, direct air routes to Australian destinations from New Zealand’s regional cities of Dunedin, Hamilton and Palmerston North have seen a major decline and, in most cases, the complete closure of those routes. This study uses the two-stage least squares (2SLS) gravity model to investigate the determinants of air passenger numbers on eight sampled city-pair routes. Empirical results show that for these trans-Tasman markets, expanded seat capacity has a strong positive impact on air passenger numbers. A longer driving time to travel to the nearest alternative international airport, the 2008/09 GFC and the winter season in New Zealand are also associated with an increase in air passenger numbers. In contrast, the presence of full-service network carriers has a negative impact on air passenger numbers.