How do Sustained Changes in Cost of Airlines Influence Air Traffic
The air transport industry hinges upon a subtle balance between supply and demand, costs and prices. With oil prices doubling in the past year, fuel now accounts for 30 to 50 percent of airlines’ cost. This paper focuses on the analysis of cost components and examines the extent to which air traffic is affected by the possible changes in cost components by using a panel data of 14 European Airlines for the period of 1990-2006. In order to have the most complete accounts of these supply side effects on air traffic, the authors will disentangle supply side effects from demand side effects. In order to accomplish this, the authors specify a symmetric generalized McFadden cost function and extend the standard cost analysis to include an output demand equation specified according to a nested-logit model derived from a random utility framework.This approach allows the authors to derive prices and quantities under pure strategy Nash equilibrium. Market equilibrium results are driven by solving these two equations. The authors simulate some possible scenarios about the changes in the cost structure of airlines in order to measure the effects of those changes. This study differs from previous studies in the way that the authors jointly estimate a generalized McFadden Cost Function which satisfies global concavity in input prices conditions and an output demand function for European airlines. Obtaining the market equilibrium conditions, the authors simulate potential scenarios on structural and regulatory changes (e.g. fuel prices and emission fees), which allows to evaluate respective effects of those changes on air traffic.
- Record URL:
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Corporate Authors:
Association for European Transport (AET)
1 Vernon Mews, Vernon Street, West Kensington
London W14 0RL, -
Authors:
- Toru, T
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Conference:
- European Transport Conference, 2009
- Location: Leiden Leeuwenhorst Conference Centre , Netherlands
- Date: 2009-10-5 to 2009-10-7
- Publication Date: 2009
Language
- English
Media Info
- Media Type: Web
- Pagination: v.p.
- Monograph Title: European Transport Conference, 2009 Proceedings
Subject/Index Terms
- TRT Terms: Air traffic; Air transportation; Airlines; Logits; Operating costs; Supply; Travel demand
- Uncontrolled Terms: Cost functions; Fuel costs; Nash equilibrium
- Geographic Terms: Europe
- Subject Areas: Aviation; Finance; Operations and Traffic Management; Planning and Forecasting; I72: Traffic and Transport Planning;
Filing Info
- Accession Number: 01344941
- Record Type: Publication
- Files: TRIS
- Created Date: Jul 20 2011 7:24AM