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Cost competitiveness of major airlines: an international comparison

  • Oum, Tae Hoon
  • Yu, Chunyan
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    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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    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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    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, vol. 80(3), pages 508-518, February.
    2. Encaoua, David, 1991. "Liberalizing European airlines : Cost and factor productivity evidence," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 109-124, March.
    3. 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 245-60, February.
    4. Christensen, Laurits R & Jorgenson, Dale W, 1969. "The Measurement of U.S. Real Capital Input, 1929-1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
    5. 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, vol. 92(365), pages 73-86, March.
    6. Good, D.H. & Nadiri, M.I. & Roller, L.H. & Sickles, R., 1992. "Efficiency and Productivity Growth Comparisons of European and U.S. Air Carriers : A First Look at the Data," Working Papers 92-22, C.V. Starr Center for Applied Economics, New York University.
    7. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
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