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A comparative analysis of cost change for low-cost, full-service, and other carriers in the US airline industry

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  • Bitzan, John
  • Peoples, James

Abstract

This study compares cost and productivity changes of full-service carriers (FSCs), low-cost carriers (LCCs) and ‘other’ carriers classified as regional or charter firms. Findings show cost reductions of 10 percent for FSCs and 22 percent for regionals/charters, and cost increases of 8.5 percent for LCCs from 1993 to 2014. Nontrivial productivity gains due to increases in load factor and stage length explain the findings for FSCs. Unexplained technical change accounts for the cost increases for LCCs, while productivity gains due to increases in load factor and stage length and unexplained technical change contribute to cost declines for ‘other’ carriers. These findings are interpreted as indicating (1) the LCC cost advantage over FSCs has eroded somewhat over this period, and (2) sources of cost changes over this period differ by air carrier classification.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:retrec:v:56:y:2016:i:c:p:25-41
    DOI: 10.1016/j.retrec.2016.07.003
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    2. Dobruszkes, Frédéric & Wang, Jiaoe, 2019. "Developing a low-cost airline in a semi-protected regime: Comparing China to Europe and the US," Journal of Transport Geography, Elsevier, vol. 77(C), pages 48-58.
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    6. Wu, Chuntao & Liao, Maozhu & Zhang, Yahua & Luo, Mingzhi & Zhang, Guoquan, 2020. "Network development of low-cost carriers in China's domestic market," Journal of Transport Geography, Elsevier, vol. 84(C).
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    8. Frédéric Dobruszkes & Jiaoe Wang, 2019. "Developing a low-cost airline in a semi-protected regime: Comparing China to Europe and the US," ULB Institutional Repository 2013/286424, ULB -- Universite Libre de Bruxelles.
    9. Chantal Roucolle & Tatiana Seregina & Miguel Urdanoz, 2017. "Measuring Airline Networks: Comprehensive Indicators," Post-Print hal-01822938, HAL.
    10. 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.

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    More about this item

    Keywords

    Airlines; Costs; Productivity; Low-cost carriers; Full-service carriers;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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