Where:
Traffic t is the dependent variable,•
Traffic t-1 is the traffic in the same month (or quarter) • of the previous year
Price is the average economy or leisure air travel price.•
Var2 to VarN are other quantifiable explanatory • variables that affect traffic levels.
ln( ) refers to the variables inside of the parentheses • transformed by the natural logarithm.
The dummies are variables that take the form of 1 • or 0 in any observation and capture any remaining structural reasons for traffic differences between routes.
Since traffic appears on both sides of the equation, the coefficients on the explanatory variables cannot be directly interpreted as long-run elasticities. The long-run elasticities are defined as when traffic across time periods stabilise. In general, the use of ARDL models tended to produce more elastic price elasticity estimates with much higher goodness of fit values.