EXCESS CAPACITY: A PERMANENT CHARACTERISTIC OF US AIRLINES?: SUMMARY

This paper examines the permanence of excess capacity in the US airline industry. To avoid the problems with the standard engineering measure of capacity utilization, load factor, we define and measure capacity as an economic concept. Two measures of economic capacity utilization are then computed--...

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Bibliographic Details
Published in:Journal of applied econometrics (Chichester, England) England), 1998-11, Vol.13 (6), p.645
Main Authors: Baltagi, Badi H, Griffin, James M, Vadali, Sharada R
Format: Article
Language:English
Subjects:
Air travel
Aircraft
Aircraft accidents & safety
Airline industry
Costs
Deregulation
Engineering
Load
Product quality
Shadow prices
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Summary:This paper examines the permanence of excess capacity in the US airline industry. To avoid the problems with the standard engineering measure of capacity utilization, load factor, we define and measure capacity as an economic concept. Two measures of economic capacity utilization are then computed--one, a demandbased measure and the other an output-based measure of capacity utilization. Both measures share little in common with the standard engineering measure (load factor) and reveal some interesting attributes of airline travel demand. This paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulation. Specifically, it is found that deregulation with the concomitant rationalization of route structures enabled airlines to move closer to their optimal levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered.
ISSN:0883-7252
1099-1255