Excess capacity: a permanent characteristic of US airlines?

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.645-657
Main Authors: Baltagi, Badi H., Griffin, James M., Vadali, Sharada R.
Format: Article
Language:English
Subjects:
Air transport
Air transportation industry
Aircraft
Airline industry
Airlines
Capacity costs
Capacity utilization
Consumer demand
Cost analysis
Cost estimates
Deregulation
Econometrics
Economic models
Economic theory
Engineering
Excess capacity
Load forces
Production capacity
Statistical analysis
Studies
Time series
Trunk roads
Variable costs
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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
DOI:10.1002/(SICI)1099-1255(199811/12)13:6<645::AID-JAE485>3.0.CO;2-R