Service Producer Price Index for Scheduled Air Transport

Transcription

1 1(11) Service Producer Price Index for Scheduled Air Transport Including industry description of NACE 62.1 TPI development report no. 12 Service Producer Price Index, Price unit, Economic statistics, Statistics Sweden April 2004

2 2(11) Contents 1. Background Conditions for statistical work in the service price index area National Accounts requirements for a price index Introduction International and national experiences International experience National experience Industry description SE-SIC Industry structure and statistical classification Net turnover, number of enterprises and number of employees.6 4 Scheduled air transport of passengers Domestic flights International flights Methodology review Scheduled air transport of goods Price formation Statistical terminology The sample process Problems encountered Collection process Price measurement methods Assumptions, weights and index calculation Index calculation Conclusions...10

3 3(11) Service Producer Price Index for Scheduled Air Transport, NACE 62.1 TPI development report no 12 TPI is a Swedish acronym for a service (tjänste) price index. The TPI project is a development project to produce service price indices. 1. Background A price index for service industries will be produced within the framework of the TPI project, which began in January The service price index will be a producer price index for services, the primary objective being for use in the Swedish National Accounts system. It will be used for the fixed price calculation of services in GDP at product group level, regardless of whether the service is used by households, government or enterprises. The project will also produce a price index for the export of services. A service is defined as an exported service when the person paying for the service has a foreign address, regardless of where the service is delivered. This could result in a Swedish subsidiary or a Swedish affiliate in a foreign country, with a foreign address, exporting services from Sweden. Creating price indexes on an industry basis requires knowledge about the industry s structure (its size and concentration), the actors (the enterprises ) size, number, turnover, their geographical location in the industry, etc. The price setting mechanisms are studied and typical products are followed. 1.1 Conditions for statistical work in the service price index area Two guiding principles have been applied: The service price index is a producer price index, which describes the average price development at producer level for service industries in the first stage of distribution, when services are delivered from domestic service providers. The index figure refers to one quarter period and the price data will represent an average per quarter. The forthcoming PPI manual, which is under development at the UN, is expected to include services. It is largely complete and states that the measurement should concern transaction prices. The transaction price is the service's actual price, i.e. that which the buyer actually pays. A regulation was also introduced on the area for the National Accounts (2223/96) on 17 December 2002.

4 4(11) 2.2 National Accounts requirements for a price index In the Swedish National Accounts system, which is produced by Statistics Sweden, services are regarded as equal to goods, and both are called products. The ideal index for fixed price calculations and comparisons among different countries is, according to ESA 1995 chapter 10, Fisher's index formula. However, the Fisher formula has the disadvantage that it is not additive, not even for the year closest to the base year. Therefore, the Paasche price index and the Laspeyres volume index are preferable to Fisher. The same chapter admits, however, that other types of price index can be used for shorter time comparisons, i.e. month or quarter. In general, changes in a transaction value must be referred to either as a price change, a volume change or a combination of the two. For transactions in services, it is often difficult to specify the characteristics which determine the services and to show a quantity, and differences of opinion on the criteria to be used may arise. This may concern important industries such as banking and other financial intermediation services, wholesale and retail trade, consulting services, education, research and development, health or recreation services. In view of the growing importance of service industries, it is essential to find common solutions to the problem of quantifying services, even if they are only conventional ones. 1 ESA 1995 places high demands on the homogeneity and quality adjustments when registering changes during different periods. 2. Introduction Scheduled air transport, SNI , is a part of SNI Air transport. Industries classified under this code are: Table 1: Industries classified under SNI Air transport: persons and goods traffic SNI Description Scheduled air transport Non-scheduled air transport Space transport SNI covers of scheduled air transport of both passengers and goods. The work in this report aims primarily to produce a service price index for scheduled air transport of goods but also includes information on the background to the methodology review that was carried out in 2004 for scheduled air transport of passengers. 1 (ESA 1995, chapter 10.14)

5 5(11) According to the Swedish National Accounts, the different product groups (PG) within SNI are divided as follows. Table 2: Different product groups within SNI , according to Swedish National Accounts 2 PG Description Weighting % 5C H - marginal Air- and spacecraft A Passengers B Transport of goods C Rental of aircraft Cargo handling Storage and warehousing Other supporting air transport services A Other travel arrangements Other transport agencies Supporting financial services A Premises Rental of automobiles A Car benefits Rental of air transport equipment Rental of machinery Computer equipment EG Own software A Other computer services Legal and financial consultancy services Architectural and technical consultancy services Technical testing Education and training Correction for XXX 16.6 To meet the needs of the National Accounts, the TPI project concentrates primarily on those product groups that have a relatively large weighting. According to the 2002 business register, which was updated in August 2002, there are 61 enterprises in Sweden that are classified under SNI These enterprises employed persons. Their total net turnover was SEK 22 billion. The three largest enterprises account for slightly over 93 % of this turnover. The industry is dominated by a few large enterprises. 2.1 International and national experiences International experience The annual OECD Inquiry on the National Collection of Services Producer Prices concludes that the United Kingdom, the US, Australia, New Zealand, Mexico, Austria, the Czech Republic, Korea, Finland, Japan, Portugal, Poland and Hong Kong are now collecting or planning to collect price information on scheduled air transport. The majority of countries collect price information on scheduled air transport of passengers, for which the most suitable price measurement method is item pricing. There are a few 2 Data refers to 2000

6 6(11) countries collecting or planning to collect price information on scheduled air transport of goods and, with caution, it can be considered that model pricing is the most suitable price measurement method National experience The development of a price index for the service industry SNI , road transport of goods and SNI , sea transport of goods, has contributed greatly to the development of a price index for air transport of goods. Despite the fact that the methods of transport differ significantly, the services have a certain amount in common as they all concern the transportation of goods from A to B. 3. Industry description SNI Industry structure and statistical classification In SNI 2002, the standard for Swedish product classification by industry type 2002, the industry term for 62.1 is Scheduled air transport, which consists of regular air transport of passengers and goods. ISIC (International Standard Industrial Classification of All Economic Activities) is the UN's nomenclature of which the European corresponding nomenclature is called NACE (General Industrial Classification of Economic Activities of the European Communities) and the corresponding Swedish nomenclature is SNI CPA, Classification of products by activities, is the EU's product standard and SNI 2002 is the Swedish SNI-adapted version. SNI 60.1 corresponds to Group 621 in ISIC Rev. 3.1 and Class in NACE Rev Net turnover, number of enterprises and number of employees Table 3 below shows how the variables "number of enterprises", "number of employees" and "net turnover" are divided by size. Table 3: Structure of the industry by size class for number of employees. Number of Number of % Turnover, % employees enterprises SEK 000s Total: Source: Business Statistics 2002

7 7(11) The above table shows that the few large enterprises in the industry account for slightly over 93 % of turnover. A cut-off limit of 10 employees would cover almost 100 % of turnover but more than 75 % enterprises have less than 10 employees. 4 Scheduled air transport of passengers 4.1 Domestic flights Service prices for domestic flights have been collected since December Until 2004, airline companies submitted price data (list prices) for tickets for business and private travellers on a monthly basis. During the period 1997 to 2002, the index was published annually in P 10 SM as a monthly index. Between 2002 and 2003, the price index for business and private travellers was published every quarter on Statistics Sweden's website which was discontinued in 2004 for confidentiality reasons after a change in methodology. 4.2 International flights Development of a service price index for international passenger transport by air began in autumn The price development for both tickets in business class and economy class was observed. The market is dominated by one large enterprise and, therefore, for confidentiality reasons, the service price index for international passenger transport by air is not published. 4.3 Review of methodology At the end of 2003, work began to review the service price index for air transport of passengers. The methodology review concerns the transition from listed prices to transaction prices. The review covered both domestic and international air transport of passengers and was carried out in cooperation with the enterprises involved. From the fourth quarter 2003, the enterprises concerned should choose a few routes and ticket types that can be considered representative for the enterprise. The enterprises are asked every quarter to submit an average invoiced price for both business and private travellers on the selected domestic and international routes and the selected ticket types.

8 8(11) 5. Scheduled air transport of goods During the spring of 2003, a project was initiated to define a price measurement method for the scheduled air transport of goods, SNI , and to test this. The National Accounts is generally the main user of producer price indexes for services but, in this case, the objective was also to comply with the future supplement to the EU Regulation 1165/98 on STS (short-term statistics), which requests a price index within the framework of the service area. The prices for transportation of post should also be collected as this is a significant part within the air transport of goods. 5.1 Price formation Visits have been made to the largest companies in the industry to increase industry knowledge and to help define the services that can be followed over time. The setting of prices for air transport of goods depends on a number of different and continuously changing factors, such as distance, weight, domestic, international, return freight, type of freight, and it can be problematic to differentiate the services from each other. Every transportation can be considered a unique service, individually tailor-made for every customer. This causes difficulties in finding constant and repetitive services that are able to be followed over time. After consulting enterprises in the industry, we have chosen a number of factors that they feel have the greatest significance for the price. It is impossible to cover all the factors that influence the setting of prices but those that are considered possible to follow are customer, type of freight, weight and route. The largest enterprises in the industry dominate both the domestic and international air transport of goods market while the smaller enterprises in the industry work with the air transport of passengers and allow their freight to be transported by the larger enterprises. 5.2 Statistical terminology The object that the survey identified for measurement, the target object, is air transport services for goods in Sweden and abroad, carried out by Swedish enterprises for both Swedish and foreign enterprises. The target variable is the price for the service that the customer actually pays. The target population consists of all enterprises in Sweden that are employed in the air transport of goods. Sweden's Statistical Databases are used as a sample frame.

9 9(11) 5.3 The sample process SNI consists of scheduled air transport of passengers and goods. A division on a more detailed level about which enterprises are active with the air transport of passengers and/or goods does not exist. Enterprises in the industry were contacted by telephone and around 10 enterprises that work with the air transport of goods took part in a test survey Problems encountered The lack of a detailed breakdown on which enterprises carry out goods transport in SNI has been a serious problem for the development of a service price index for the air transport of goods. 5.4 Collection process The enterprises receive introductory information and questionnaires by mail. They can then choose different response alternatives (mail, fax or ). 5.5 Price measurement methods We have chosen model pricing as the method for following price development. This means that the enterprises choose a representative contract during the first quarter and are then asked to set a price for the same service in the following quarters. This method is used internationally for other industries that are based on one product and is considered to be the preferable method. It is important for this method to regularly update the representative services. When one of the enterprise's representative services are no longer representative, it should be replaced with a more representative service. The enterprises were asked to select themselves at least four representative and recurring services. The index figure refers to one quarter and, if the service has been carried out several times during the period, the price data should represent an average for the quarter. 5.6 Assumptions, weights and index calculation We have chosen to use a geometric index, Jevons, for the calculations. This is because we do not have the weighting information that would be necessary for a more advanced index and Jevons is the only index that can deal with disparate prices. For SNI , scheduled air transport of goods, one

10 10(11) index is calculated for each enterprise. A total index is then calculated for the whole industry by weighting together the indexes from different enterprises Index calculation The index is calculated in two stages: 1.Firstly, the index for the respective enterprise v is calculated according to Jevons: j I 0t 1 j n n P it = (4-1) i = 1 j P i0 where j Pit = price for the service i, enterprise j, at moment in time t and j P = price for the service i, enterprise j, at base moment in time 0. i0 2. Secondly, the index for the industry is calculated by weighting together the indexes for the respective enterprises according to the following: I 0t = m j = 1 j I 0t j w (4-3) where j w = proportion for the enterprise, where the large enterprises have their own weight and the small enterprises equally divide the rest. base = 4th quarter 2003 weight period = Conclusions The results of the test survey were positive and many useful comments were received. Of the 10 enterprises included in the sample, 3 responded (taking part in the test survey was voluntary). It is now considered possible, after a few smaller changes in the questionnaire, to go ahead with the production of an index. Meeting enterprises and gaining knowledge about price formation in the industry was a valuable stage in the process. As with road and sea transport

11 11(11) of goods 3, model pricing has been used. This depends on the enterprise referring to an actual contract the first time they respond to the questionnaire and then asking that they set a price for the same contract every quarter. The results of this test survey are extremely unreliable, as only very few price details have been given. They will, however, be somewhat in line with how the industry seems to be developing. 3 TPI project report no 6 & 7