An Analysis of Travel Demand in Japan’s Inter-city Market: Empirical Estimation and Policy Simulation

Major industry and policy changes are taking place in the Japan’s inter-city travel market. This study empirically estimates the air-rail travel demand model with aggregate OD market data. The estimated model is then used to estimate the effects of introducing super high speed rail (HSR), and alternative levels of CO2 emission taxation on the demands for airline and HSR modes. Our key findings are: (a) In Japanese consumers mind there is a substantial product differentiation between air and rail travel modes; (b) Japanese consumers are moderately sensitive to price while being highly sensitive to travel time and frequency of services; (c) The estimated average value of travel time is $42 per hour while the estimated value of airline frequency is about $2 per weekly departure per passenger; (d) The proposed Tokyo-Osaka superconducting maglev HSR services would drive airlines out of business while stimulating substantial new traffic in that market; and (e) CO2 emission taxation would have only a moderate impact on modal shift from air to HSR mode.