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Cost pass-through in the airline industry: price responses and asymmetries

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  • Shih-Hsien Chuang

    (Northwest Missouri State University)

Abstract

We investigate how fuel cost shocks are passed to air travel fares. Two-staged least squares estimators are used with retail gasoline and crude oil prices employed as instruments. Our results suggest that the cost shock effect on airfare is higher for positive shocks than for negative shocks. Such effect mostly occurs approximately in the same quarter, and then it reaches to the long run equilibrium. The timing of the effect may be explained by ticket purchasing and/or carrier fuel hedging decisions. Significant differentials are found for different business models, slot capacity, service classes, and market structure.

Suggested Citation

  • Shih-Hsien Chuang, 2020. "Cost pass-through in the airline industry: price responses and asymmetries," Economics Bulletin, AccessEcon, vol. 40(1), pages 639-652.
    • Handle: RePEc:ebl:ecbull:eb-19-00711
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric responses; Jet fuel; Pass-through; Airline industry;
    All these keywords.

    JEL classification:

    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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