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Excess capacity: a permanent characteristic of US airlines?

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Author Info

  • Badi H. Baltagi

    (Texas A&M University, Department of Economics, College Station, Texas, 77843-4228, USA)

  • James M. Griffin

    (Texas A&M University, Department of Economics, College Station, Texas, 77843-4228, USA)

  • Sharada R. Vadali

    (Texas A&M University, Department of Economics, College Station, Texas, 77843-4228, USA)

Abstract

This paper examines the permanence of excess capacity in the US airline industry. To avoid the problems with the standard engineering measure of capacity utilization, load factor, we define and measure capacity as an economic concept. Two measures of economic capacity utilization are then computed-one, a demand-based measure and the other an output-based measure of capacity utilization. Both measures share little in common with the standard engineering measure (load factor) and reveal some interesting attributes of airline travel demand. This paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulation. Specifically, it is found that deregulation with the concomitant rationalization of route structures enabled airlines to move closer to their optimal levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered. © 1998 John Wiley & Sons, Ltd.

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File URL: http://qed.econ.queensu.ca:80/jae/1998-v13.6/
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 13 (1998)
Issue (Month): 6 ()
Pages: 645-657

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Handle: RePEc:jae:japmet:v:13:y:1998:i:6:p:645-657

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Cited by:
  1. Kutlu, Levent & Sickles, Robin C., 2012. "Estimation of market power in the presence of firm level inefficiencies," Journal of Econometrics, Elsevier, vol. 168(1), pages 141-155.
  2. Efthymios Tsionas & Dimitris Christopoulos, 2001. "Efficiency measurement with nonstationary variables: an application of panel cointegration techniques," Economics Bulletin, AccessEcon, vol. 3(14), pages 1-7.
  3. Kostas Tsekouras & Dimitris Skuras, 2005. "Productive efficiency and exports: an examination of alternative hypotheses for the Greek cement industry," Applied Economics, Taylor & Francis Journals, vol. 37(3), pages 279-291.
  4. Subal Kumbhakar & Efthymios Tsionas, . "Does Deregulation Change Economic Behavior of Firms?," Working Papers 0303, University of Crete, Department of Economics.

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