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Cost convergence in the US airline industry: An analysis of unit costs 1995–2006

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  • Tsoukalas, Gerassimos
  • Belobaba, Peter
  • Swelbar, William

Abstract

Recent changes in the strategies of US airlines have led to a convergence of unit costs between the network legacy carriers and low-cost carriers. We develop a methodology for breaking down operating cost data reported by the airlines and argue that certain cost categories must be excluded to make a valid comparison between the carrier groups. We find significant evidence of convergence in unit costs excluding fuel and transport-related expenses, and labor unit costs in particular. While network legacy carriers have improved cost efficiency through dramatic labor cost reductions and longer stage length flying, low-cost carriers labor unit costs continue to increase as these former new entrant airlines mature.

Suggested Citation

  • Tsoukalas, Gerassimos & Belobaba, Peter & Swelbar, William, 2008. "Cost convergence in the US airline industry: An analysis of unit costs 1995–2006," Journal of Air Transport Management, Elsevier, vol. 14(4), pages 179-187.
    • Handle: RePEc:eee:jaitra:v:14:y:2008:i:4:p:179-187
    DOI: 10.1016/j.jairtraman.2008.04.005
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    Cited by:

    1. Ben Abda, Mehdi & Belobaba, Peter P. & Swelbar, William S., 2012. "Impacts of LCC growth on domestic traffic and fares at largest US airports," Journal of Air Transport Management, Elsevier, vol. 18(1), pages 21-25.
    2. Azadian, Farshid & Vasigh, Bijan, 2019. "The blurring lines between full-service network carriers and low-cost carriers: A financial perspective on business model convergence," Transport Policy, Elsevier, vol. 75(C), pages 19-26.
    3. Bitzan, John & Peoples, James, 2014. "U.S. air carriers and work-rule constraints – Do airlines employ an allocatively efficient mix of inputs?," Research in Transportation Economics, Elsevier, vol. 45(C), pages 9-17.
    4. Moir, Loren & Lohmann, Gui, 2018. "A quantitative means of comparing competitive advantage among airlines with heterogeneous business models: Analysis of U.S. airlines," Journal of Air Transport Management, Elsevier, vol. 69(C), pages 72-82.
    5. Zhu, Haoruo & Ni, Yaodong & Yang, Meng & Song, Qinyu, 2023. "Blessing or curse? Impact of incomplete information in a networked cournot competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    6. Chao, Ching-Cheng & Hsu, Ching-Wen, 2014. "Cost analysis of air cargo transport and effects of fluctuations in fuel price," Journal of Air Transport Management, Elsevier, vol. 35(C), pages 51-56.
    7. Tsionas, Efthymios & Assaf, A. George & Gillen, David & Mattila, Anna S., 2017. "Modeling technical and service efficiency," Transportation Research Part B: Methodological, Elsevier, vol. 96(C), pages 113-125.
    8. Abdelghany, Ahmed & Abdelghany, Khaled & Azadian, Farshid, 2023. "The airline seat capacity allocation problem: An expected marginal profit approach," Journal of Air Transport Management, Elsevier, vol. 112(C).
    9. Zou, Li & Yu, Chunyan, 2020. "The evolving market entry strategy: A comparative study of Southwest and JetBlue," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 682-695.
    10. William Morrison, Jaap de Wit, 2017. "US Open Skies Agreements and Unlevel Playing Fields," LCERPA Working Papers 0104, Laurier Centre for Economic Research and Policy Analysis, revised 01 Aug 2017.
    11. Cho, Woohyun & Min, Dong-Jun, 2018. "Longitudinal examination of passenger characteristics among airline types in the US," Journal of Air Transport Management, Elsevier, vol. 72(C), pages 11-19.
    12. Klophaus, Richard & Yu, Chunyan, 2023. "Short-haul airline services in Europe and North America - A cross-business model and cross-continental analysis," Journal of Air Transport Management, Elsevier, vol. 109(C).
    13. Zuidberg, Joost & de Wit, Jaap G., 2020. "The development of long-haul low-cost networks in the North Atlantic airline market: An exploratory data approach," Transport Policy, Elsevier, vol. 95(C), pages 103-113.
    14. Ferrer-Rosell, Berta & Coenders, GermÃ, 2017. "Airline type and tourist expenditure: Are full service and low cost carriers converging or diverging?," Journal of Air Transport Management, Elsevier, vol. 63(C), pages 119-125.
    15. Delbari, Seyyed Ali & Ng, Siew Imm & Aziz, Yuhanis Abdul & Ho, Jo Ann, 2016. "An investigation of key competitiveness indicators and drivers of full-service airlines using Delphi and AHP techniques," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 23-34.
    16. Morrison, William G. & de Wit, Jaap, 2019. "US open skies agreements and unlevel playing fields," Journal of Air Transport Management, Elsevier, vol. 74(C), pages 30-38.
    17. Berrittella, Maria & La Franca, Luigi & Zito, Pietro, 2009. "An analytic hierarchy process for ranking operating costs of low cost and full service airlines," Journal of Air Transport Management, Elsevier, vol. 15(5), pages 249-255.
    18. Ruiz-Moreno, Felipe & Mas-Ruiz, Francisco J. & Sancho-Esper, Franco M., 2021. "Strategic groups and product differentiation: Evidence from the Spanish airline market deregulation," Research in Transportation Economics, Elsevier, vol. 90(C).
    19. Zuidberg, Joost, 2014. "Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 86-95.
    20. Babić, Danica & Kalić, Milica, 2018. "Modeling the selection of airline network structure in a competitive environment," Journal of Air Transport Management, Elsevier, vol. 66(C), pages 42-52.
    21. Bitzan, John & Peoples, James, 2016. "A comparative analysis of cost change for low-cost, full-service, and other carriers in the US airline industry," Research in Transportation Economics, Elsevier, vol. 56(C), pages 25-41.
    22. Chiambaretto, Paul & Combe, Emmanuel, 2023. "Business model hybridization but heterogeneous economic performance: Insights from low-cost and legacy carriers in Europe," Transport Policy, Elsevier, vol. 136(C), pages 83-97.
    23. Singh, Jagroop & Sharma, Somesh Kumar & Srivastava, Rajnish, 2019. "What drives Indian Airlines operational expense: An econometric model," Journal of Air Transport Management, Elsevier, vol. 77(C), pages 32-38.
    24. Park, Yongha & O'Kelly, Morton E., 2018. "Examination of cost-efficient aircraft fleets using empirical operation data in US aviation markets," Journal of Air Transport Management, Elsevier, vol. 69(C), pages 224-234.
    25. Sigbjorn Tveteras & Kristin H. Roll, 2014. "Non-Stop Flights and Tourist Arrivals," Tourism Economics, , vol. 20(1), pages 5-20, February.

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