Topic: 12.4 Aviation
This paper examines the pattern of a firm’s pricing rivalry and its associated price elasticities in a set of duopoly routes. The parameters of the marginal cost function are also estimated. This model allows for free variation of estimated “conduct parameters” and price elasticities across airline routes.
Measures of the total factor productivity and unit costs of 14 US and 27 non-US airlines in 1983 indicate that the US has a 12 per cent productivity advantage, partially offset by higher labour prices resulting in equivalent unit costs for the US and non-US carriers. Higher productivity levels are the result of higher traffic density. Deregulation is unlikely to close the productivity gap unless non-US carriers increase their traffic density.
Airlines in Canada are generally smaller than in the US, despite recent growth, and supply more charter and freight services; but deregulation is on similar lines. Air Canada has the most excess capacity. The authors recommend that it be placed on an equal footing financially with the others, either by privatisation or by taxation.
Further Evidence on Factors influencing Operating Costs of US Commercial Airlines. A Cross-sectional Study for the Years 1967/68 and 1971/72
An article by two of the authors, published in this Journal in January 1975, examined airline costs for 1967/68. The study is now extended and completed with a comparison of more recent data.
This paper summarises the results of a cost allocation study carried out for the US government. Taxes paid by air carriers and general aviation vary mainly with distance travelled, while costs of the Airport and Airway System are mainly incurred in terminal control. There are large shortfalls in tax recovery, especially from general aviation.
Unit cost is reduced by long stage length but increased by high stage density. A mixture of long and short stages seems to be advantageous. Network characteristics determine the technology, which in turn determines unit cost. Fleet standardisation has little effect.