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Flight delays, capacity investment and social welfare under air transport supply-demand equilibrium

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  • Zou, Bo
  • Hansen, Mark
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    Abstract

    This paper analyzes benefits from aviation infrastructure investment under competitive supply-demand equilibrium. The analysis recognizes that, in the air transportation system where economies of density is an inherent characteristic, capacity change would trigger a complicated set of adjustment of and interplay among passenger demand, air fare, flight frequency, aircraft size, and flight delays, leading to an equilibrium shift. An analytical model that incorporates these elements is developed. The results from comparative static analysis show that capacity constraint suppresses demand, reduces flight frequency, and increases passenger generalized cost. Our numerical analysis further reveals that, by switching to larger aircraft size, airlines manage to offset part of the delay effect on unit operating cost, and charge passengers lower fare. With higher capacity, airlines tend to raise both fare and frequency while decreasing aircraft size. More demand emerges in the market, with reduced generalized cost for each traveler. The marginal benefit brought by capacity expansion diminishes as the capacity-demand imbalance becomes less severe. Existing passengers in the market receive most of the benefit, followed by airlines. The welfare gains from induced demand are much smaller. The equilibrium approach yields more plausible investment benefit estimates than does the conventional method. In particular, when forecasting future demand the equilibrium approach is capable of preventing the occurrence of excessive high delays.

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    Bibliographic Info

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

    Volume (Year): 46 (2012)
    Issue (Month): 6 ()
    Pages: 965-980

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    Handle: RePEc:eee:transa:v:46:y:2012:i:6:p:965-980

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    Related research

    Keywords: Flight delays; Infrastructure capacity investment; Equilibrium; Social welfare;

    References

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    1. Schipper, Youdi & Rietveld, Piet & Nijkamp, Peter, 2003. "Airline deregulation and external costs: a welfare analysis," Transportation Research Part B: Methodological, Elsevier, vol. 37(8), pages 699-718, September.
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    11. Hansen, Mark M. & Gillen, David & Djafarian-Tehrani, Reza, 2001. "Aviation infrastructure performance and airline cost: a statistical cost estimation approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 37(1), pages 1-23, March.
    12. Jorge-Calderón, J.D., 1997. "A demand model for scheduled airline services on international European routes," Journal of Air Transport Management, Elsevier, vol. 3(1), pages 23-35.
    13. Morrison, Steven A. & Winston, Clifford, 2008. "The effect of FAA expenditures on air travel delays," Journal of Urban Economics, Elsevier, vol. 63(2), pages 669-678, March.
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    15. Zhang, Yimin, 2010. "Network structure and capacity requirement: The case of China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(2), pages 189-197, March.
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    Cited by:
    1. Krier, Betty & Liu, Chia-Mei & McNamara, Brian & Sharpe, Jerrod, 2014. "Individual freight effects, capacity utilization, and Amtrak service quality," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 163-175.

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