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Cost competitiveness of major airlines: an international comparison

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  • Oum, Tae Hoon
  • Yu, Chunyan
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    Abstract

    This paper compares unit cost competitiveness of the world's 22 major airlines over the 1986-93 period. First, a unit cost index for aggregate output is computed via a multilateral index procedure. A translog variable cost function is estimated and used to decompose the unit cost differentials into potential sources: input prices, network and output attributes, and efficiency. The results of the unit cost decomposition are used to construct a cost competitiveness indicator after removing the effects of network and output attributes. Our results for 1993 are: (a) Asian carriers (except Japan Airlines and All Nippon Airways) were generally more cost competitive than the major U.S. carriers, mostly due to their substantially lower input prices; (b) Japan Airlines and All Nippon Airways were over 50% less cost competitive than American Airlines mainly because of their high input prices; (c) major European carriers were 7% (British Airways)-42% (Scandinavian Airlines Systems) less cost competitive than American Airlines, because of higher input prices and lower efficiency; (d) among the U.S. carriers, American Airlines, United Airlines and Delta were similar in cost competitiveness, while Northwest and Continental enjoyed, respectively, 5 and 12% cost competitiveness over American Airlines; (e) exchange rate fluctuation has had considerable effects on the cost competitive position of Japan Airlines and Lufthansa.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 32 (1998)
    Issue (Month): 6 (August)
    Pages: 407-422

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    Handle: RePEc:eee:transa:v:32:y:1998:i:6:p:407-422

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    References

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    1. Good, David H. & Roller, Lars-Hendrik & Sickles, Robin C., 1995. "Airline efficiency differences between Europe and the US: Implications for the pace of EC integration and domestic regulation," European Journal of Operational Research, Elsevier, Elsevier, vol. 80(3), pages 508-518, February.
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    5. David Good & M. Nadiri & Lars-Hendrik Röller & Robin Sickles, 1993. "Efficiency and productivity growth comparisons of European and U.S. Air carriers: A first look at the data," Journal of Productivity Analysis, Springer, Springer, vol. 4(1), pages 115-125, June.
    6. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(365), pages 73-86, March.
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    Cited by:
    1. Barros, Carlos Pestana & Peypoch, Nicolas, 2009. "An evaluation of European airlines' operational performance," International Journal of Production Economics, Elsevier, Elsevier, vol. 122(2), pages 525-533, December.
    2. Berrittella, Maria & La Franca, Luigi & Zito, Pietro, 2009. "An analytic hierarchy process for ranking operating costs of low cost and full service airlines," Journal of Air Transport Management, Elsevier, vol. 15(5), pages 249-255.
    3. Lorincz, Szabolcs, 2006. "Cost structure and complementarity in U.S. Telecommunications, 1989-1999," Information Economics and Policy, Elsevier, vol. 18(3), pages 285-302, September.
    4. Clougherty, J.A. & Dresner, M. & Oum, T.H., 2001. "An empirical analysis of Canadian international air policy: Effects of dual carrier designation and partial liberalization," Open Access publications from Tilburg University urn:nbn:nl:ui:12-87352, Tilburg University.
    5. Merkert, Rico & Hensher, David A., 2011. "The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 45(7), pages 686-695, August.
    6. Low, Joyce M.W. & Lee, Byung Kwon, 2014. "Effects of internal resources on airline competitiveness," Journal of Air Transport Management, Elsevier, vol. 36(C), pages 23-32.
    7. Vespermann, Jan & Wald, Andreas, 2011. "Much Ado about Nothing? – An analysis of economic impacts and ecologic effects of the EU-emission trading scheme in the aviation industry," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 45(10), pages 1066-1076.
    8. Zou, Bo & Elke, Matthew & Hansen, Mark & Kafle, Nabin, 2014. "Evaluating air carrier fuel efficiency in the US airline industry," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 59(C), pages 306-330.
    9. Lee, Boon L. & Worthington, Andrew C., 2014. "Technical efficiency of mainstream airlines and low-cost carriers: New evidence using bootstrap data envelopment analysis truncated regression," Journal of Air Transport Management, Elsevier, vol. 38(C), pages 15-20.
    10. Chang, Yu-Hern & Yeh, Chung-Hsing, 2001. "Evaluating airline competitiveness using multiattribute decision making," Omega, Elsevier, vol. 29(5), pages 405-415, October.
    11. Oum, Tae Hoon & Fu, Xiaowen & Yu, Chunyan, 2005. "New evidences on airline efficiency and yields: a comparative analysis of major North American air carriers and its implications," Transport Policy, Elsevier, vol. 12(2), pages 153-164, March.
    12. Zou, Bo & Hansen, Mark, 2012. "Impact of operational performance on air carrier cost structure: Evidence from US airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, Elsevier, vol. 48(5), pages 1032-1048.
    13. Melo Filho, Cícero R. & Salgado, Lucia Helena & Sato, Renato Cesar & Oliveira, Alessandro V.M., 2014. "Modeling the effects of wage premiums on airline competition under asymmetric economies of density: A case study from Brazil," Journal of Air Transport Management, Elsevier, vol. 36(C), pages 59-68.
    14. Halkos, George & Tzeremes, Nickolaos, 2012. "Measuring seaports’ productivity: A Malmquist productivity index decomposition approach," MPRA Paper 40174, University Library of Munich, Germany.

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