IDEAS home Printed from https://ideas.repec.org/a/eee/jaitra/v40y2014icp86-95.html
   My bibliography  Save this article

Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs

Author

Listed:
  • Zuidberg, Joost

Abstract

This paper provides the results of an econometric analysis of the influences of airline characteristics on the average operating costs per aircraft movement. The analysis combines a comprehensive selection of airline-output variables, airline-fleet variables, and airline-market variables. The results confirm the existence of economies of density, economies of load factor, economies of aircraft utilisation and economies of aircraft size. The paper does not provide evidence of economies of scale, economies of stage length or economies of fleet commonality. Furthermore, airlines that additionally operate full freighters, airlines that are members of a worldwide alliance and airlines that operate a multi-hub system face higher average operating costs per aircraft movement. Surprisingly, the regression results demonstrate that airlines that use newer aircraft have higher average operating costs per aircraft movement, suggesting that ownership costs (depreciation and leasing costs) of new aircraft outweigh the increasing maintenance costs of old aircraft. Finally, the results show that airlines that have a dominant position at their hubs or bases have higher operating costs per aircraft movement, implying that the absence of serious competitive pressure enables airlines to charge higher ticket prices and, with that, leads to a limited focus on cost savings.

Suggested Citation

  • Zuidberg, Joost, 2014. "Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 86-95.
  • Handle: RePEc:eee:jaitra:v:40:y:2014:i:c:p:86-95
    DOI: 10.1016/j.jairtraman.2014.06.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969699714000817
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wenbin Wei & Mark Hansen, 2003. "Cost Economics of Aircraft Size," Journal of Transport Economics and Policy, University of Bath, vol. 37(2), pages 279-296, May.
    2. Bailey, Elizabeth E & Friedlaender, Ann F, 1982. "Market Structure and Multiproduct Industries," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 1024-1048, September.
    3. Nicol, David J, 1978. "The influence of aircraft size on airline operating costs," Omega, Elsevier, vol. 6(1), pages 15-24.
    4. Swan, William M. & Adler, Nicole, 2006. "Aircraft trip cost parameters: A function of stage length and seat capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(2), pages 105-115, March.
    5. Tsoukalas, Gerassimos & Belobaba, Peter & Swelbar, William, 2008. "Cost convergence in the US airline industry: An analysis of unit costs 1995–2006," Journal of Air Transport Management, Elsevier, vol. 14(4), pages 179-187.
    6. Franke, Markus, 2004. "Competition between network carriers and low-cost carriers—retreat battle or breakthrough to a new level of efficiency?," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 15-21.
    7. Goh, Mark & Yong, Jongsay, 2006. "Impacts of code-share alliances on airline cost structure: A truncated third-order translog estimation," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 835-866, July.
    8. Gillen, David & Morrison, William G., 2005. "Regulation, competition and network evolution in aviation," Journal of Air Transport Management, Elsevier, vol. 11(3), pages 161-174.
    9. Brüggen, Alexander & Klose, Levin, 2010. "How fleet commonality influences low-cost airline operating performance: Empirical evidence," Journal of Air Transport Management, Elsevier, vol. 16(6), pages 299-303.
    10. Chew Chua & Hsein Kew & Jongsay Yong, 2005. "Airline Code-share Alliances and Costs: Imposing Concavity on Translog Cost Function Estimation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(4), pages 461-487, June.
    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. John D. Bitzan & Junwook Chi, 2006. "Higher Airfares to Small and Medium Sized Communities - Costly Service or Market Power?," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 473-501, September.
    13. Tretheway, Michael W, 2004. "Distortions of airline revenues: why the network airline business model is broken," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 3-14.
    14. Steven A. Morrison, 2001. "Actual, Adjacent, and Potential Competition Estimating the Full Effect of Southwest Airlines," Journal of Transport Economics and Policy, University of Bath, vol. 35(2), pages 239-256, May.
    15. Zinan Liu & E. L. Lynk, 1999. "Evidence on market structure of the deregulated US airline industry," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1083-1092.
    16. Nikos Tsikriktsis, 2007. "The Effect of Operational Performance and Focus on Profitability: A Longitudinal Study of the U.S. Airline Industry," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 506-517, April.
    17. Seristö, Hannu & Vepsäläinen, Ari P.J., 1997. "Airline cost drivers: cost implications of fleet, routes, and personnel policies," Journal of Air Transport Management, Elsevier, vol. 3(1), pages 11-22.
    18. Tim Hazledine, 2010. "Pricing, Competition and Policy in Australasian Air Travel Markets," Journal of Transport Economics and Policy, University of Bath, vol. 44(1), pages 37-58, January.
    19. Baltagi, Badi H & Griffin, James M & Rich, Daniel P, 1995. "Airline Deregulation: The Cost Pieces of the Puzzle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 245-260, February.
    20. 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.
    21. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    22. Lara Gitto & Fulvio Minervini, 2007. "The Performance of European Full Service Airlines after Liberalisation: An Econometric Analysis," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 105-122, January-F.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alam, Muhammad Aftab, 2016. "Techno-stress and productivity: Survey evidence from the aviation industry," Journal of Air Transport Management, Elsevier, vol. 50(C), pages 62-70.
    2. Wilken, Dieter & Berster, Peter & Gelhausen, Marc C., 2016. "Analysis of demand structures on intercontinental routes to and from Europe with a view to identifying potential for new low-cost services," Journal of Air Transport Management, Elsevier, vol. 56(PB), pages 79-90.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaitra:v:40:y:2014:i:c:p:86-95. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.