Dray, L;
Doyme, K;
Schafer, A;
(2020)
Airline profit maximization, cost pass-through and scarcity rents in capacity-constrained aviation systems.
Journal of Transport Economics and Policy
(In press).
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Abstract
Airport capacity limitations have been suggested to lead to reduced pass-through of airline cost changes, and increased airline profits. Theoretically, these outcomes arise from limited supply leading to profit-optimal passenger fares determined only by available capacity. Practically, however, outcomes depend on real-world airline networks, fleet and costs. In this paper we model airline competition across an existing network (Australian intercity domestic flights) with endogenously-generated fares and frequency to investigate this. Consistent with theory, we find less pass-through at airports with more stringent capacity constraints and where airlines are unequally-affected by cost changes. Per-passenger airline profit increases roughly linearly with constraint stringency.
| Type: | Article |
|---|---|
| Title: | Airline profit maximization, cost pass-through and scarcity rents in capacity-constrained aviation systems |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | https://www.ingentaconnect.com/content/lse/jtep |
| Language: | English |
| Additional information: | Copyright permission from Journal of Transport Economics and Policy. This version is the accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | airline competition, airline costs, cost pass-through, scarcity rents, profit optimization, airport capacity |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10110758 |
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