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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

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.

Suggested Citation

  • Zou, Bo & Hansen, Mark, 2012. "Flight delays, capacity investment and social welfare under air transport supply-demand equilibrium," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(6), pages 965-980.
  • Handle: RePEc:eee:transa:v:46:y:2012:i:6:p:965-980
    DOI: 10.1016/j.tra.2012.02.015
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    References listed on IDEAS

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    Cited by:

    1. Kafle, Nabin & Zou, Bo, 2016. "Modeling flight delay propagation: A new analytical-econometric approach," Transportation Research Part B: Methodological, Elsevier, vol. 93(PA), pages 520-542.
    2. Hansen, Mark & Liu, Yi, 2015. "Airline competition and market frequency: A comparison of the s-curve and schedule delay models," Transportation Research Part B: Methodological, Elsevier, vol. 78(C), pages 301-317.
    3. Santos, Miguel Gueifão & Antunes, António Pais, 2015. "Long-term evolution of airport networks: Optimization model and its application to the United States," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 73(C), pages 17-46.
    4. Zou, Bo & Hansen, Mark, 2014. "Flight delay impact on airfare and flight frequency: A comprehensive assessment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 54-74.
    5. Ryerson, Megan S. & Hansen, Mark & Bonn, James, 2014. "Time to burn: Flight delay, terminal efficiency, and fuel consumption in the National Airspace System," Transportation Research Part A: Policy and Practice, Elsevier, vol. 69(C), pages 286-298.
    6. 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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