Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs |
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| Institution: | 1. Department of Industrial Engineering (DII), University of Naples Federico II, Piazzale Tecchio, 80 – 80125 Naples, Italy;2. Management School, University of Sheffield, Conduit Road, S1 4DT, Sheffield, UK;1. Department of Finance, Commercial Aircraft Corporation of China, Ltd, No. 25, Zhangyang Road, Pudong New Area, Shanghai, China;2. Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC, V6T 1Z2, Canada;3. China Academy of Financial Research, Shanghai Jiao Tong University, China;1. Graduate School of Science and Engineering, Tokyo Institute of Technology, Tokyo 152-8550, Japan;2. Graduate School of Maritime Sciences, Kobe University, Kobe 658-0022, Japan;3. Graduate School of Urban Environmental Sciences, Tokyo Metropolitan University, Tokyo 192-0397, Japan;1. Centre for Transportation Studies, Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T1Z2, Canada;2. Faculty of Business and Economics, University of Auckland, Owen G Glenn Building, 12 Grafton Rd, Auckland 1010, New Zealand;1. Mechanical Engineering Department, National Institute of Technology, Hamirpur, H.P., 177005, India;2. Civil Engineering Department, MNIT, Bhopal, M.P., 462003, India |
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| 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. |
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| Keywords: | Airline finances Operating costs Aircraft movement Cost economies Density economies Scale economies |
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