Winning Airlines: Productivity and Cost Competitiveness of the World’s Major Airlines

230 Pages·1998·13.22 MB·English

by  Tae Hoon Oum

Winning Airlines:
Productivity and Cost Competitiveness
of the World's Major Airlines
Transportation Research, Economics and Policy
VOLUME 6
Editorial Board
Yossi Berechman
Department of Economics & Public Policy, Tel Aviv University, Israel
Kenneth Small
Department of Economics, University of California at Irvine, U.S.A.
The titles published in this series are listed at the end of this volume.
Winning Airlines
Productivity and Cost
Competitiveness of the
World's Major Airlines
By
TAE HOON OUM
University of British Columbia
and
CHUNYAN YU
University of British Columbia
W
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Library of Congress Cataloging-in-Publication Data
Oum, Tae Hoon.
Winning airlines : productivity and cost competitiveness of the
world's major airlines / by Tae Hoon Oum and Chunyan Yu.
p. cm. - (Transportation research, economics and policy ; v. 6)
Includes bibliographical references and index.
ISBN 978-1-4613-7504-3 ISBN 978-1-4615-5481-3 (eBook)
DOI 10.1007/978-1-4615-5481-3
1. Airlines-Cost of operation. 2. Aeronautics, Commercial-
Management. 3. Competition, International. I. Yu, Chunyan.
II. Title. III. Series.
HE9782.058 1997
387.7,l--dc21 97-41219
CIP
Copyright ® 1998 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 1998
Softcover reprint of the hardcover 1st edition 1998
Third Printing 2001.
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Springer Science+Business Media, LLC.
Printed on acid-free paper
This printing is a digital duplication of the original edition.
Contents
List of Figures
vii
List of Tables
xiii
Preface
xv
1 Introduction
2 The International Air Transport Industry
5
2.1 Air Traffic Growth and Economic Growth 5
2.2 Financial Performance 11
2.3 Alliance and Globalization 17
2.4 Summary 19
3 International Regulatory Environment
21
3.1 North America 22
3.2 Europe 25
3.3 Asia-Pacific 28
3.4 Summary 31
4 Operating Environment and Input Prices
33
4.1 Carrier Profiles 33
4.2 Carrier Profitability 38
4.3 Input Prices 42
4.4 Exchange Rate Fluctuation 54
4.5 Global Sourcing 63
4.6 Summary 65
Appendix 4 Aircraft Price Index 66
5 Partial Factor Productivities and Input Efficiency
Indices
67
5.1 Airline Output and Input 67
5.2 Partial Factor Productivities and Input Efficiency Measures 77
5.3 Summary 91
Appendix 5 Partial Factor Productivity Regression Results 92
6 Airline Productivity and Efficiency 93
6.1 Total Factor Productivity 93
vi Contents
6.2 Productivity and Efficiency 97
6.3 Two-Step TFP Method for Computing Residual TFP 98
6.4 Stochastic Frontier Method 106
6.5 Effects of Government Ownership on Efficiency 113
6.6 Summary 114
Appendix 6 Alternative Efficiency Estimates 115
7 Preliminary Cost Analysis 127
7.1 Airline Cost Structure 127
7.2 Unit Cost Measurement 139
7.3 Factors Affecting Unit Costs 143
7.4 Effects of Exchange Rate Fluctuations on Unit Cost 146
7.5 Summary 153
8 Cost Competitiveness 155
8.1 Introduction 155
8.2 Specification of Cost Function 156
8.3 Empirical Results 158
8.4 Unit Cost Competitiveness 162
8.5 Changes in Cost Competitiveness 163
8.6 Exchange Rate Effects on Cost Competitiveness 167
8.7 Summary 177
9 Yields, Costs and Financial Performance 179
9.1 North American Carriers 180
9.2 European Carriers 185
9.3 Asian and Australian Carriers 189
9.4 Comparison among North American, European
and Asian Carriers 194
9.5 Summary 194
10 Summary and Conclusions 199
10.1 Summary of Findings 199
10.2 Conclusions 203
10.3 Further Research 205
References
207
About the Authors
213
Index
215
Figures
2.1a World GOP Index 6
2.1b World GOP Growth Rate 6
2.2a Total Traffic: Passengers 7
2.2b Total Traffic: Passenger-Km 8
2.3 GOP Growth vs RPK Growth 8
2.4a World Passenger Traffic by Region 9
2.4b Asia-Pacific Share of World International Scheduled Passengers 10
2.5a World Airline Yield Index 11
2.5b World Airline Unit Cost Index 12
2.6 Aircraft Fuel and Oil Price 14
2.7 Yield and Unit Cost 15
2.8 Operating and Net Results 16
2.9 World Scheduled RPK-Top 4 Alliances 18
4.1a Stage Length: North American Carriers 35
4.1b Stage Length: European Carriers 35
4.1c Stage Length: Asian Carriers 36
4.2a Load Factor: North American Carriers 36
4.2b Load Factor: European Carriers 37
4.2c Load Factor: Asian Carriers 37
4.3 Revenue by Category 1995 39
4.4a Revenue/Expense Ratio: North American Carriers 41
4.4b Revenue/Expense Ratio: European Carriers 41
4.4c Revenue/Expense Ratio: Asian Carriers 42
4.5a Labour Price: North American Carriers 43
4.5b Labour Price: European Carriers 43
4.5c Labour Price: Asian Carriers 44
4.6a Fuel Price: North American Carriers 45
4.6b Fuel Price: European Carriers 45
viii Figures
4.6c Fuel Price: Asian Carriers 46
4.7a Aircraft Price Index: North American Carriers 48
4.7b Aircraft Price Index: European Carriers 49
4.7c Aircraft Price Index: Asian Carriers 49
4.8a Capital Price Index: North American Carriers 50
4.8b Capital Price Index: European Carriers 51
4.8c Capital Price Index: Asian Carriers 51
4.9a Materials Price Index: North American Carriers 52
4.9b Materials Price Index: European Carriers 53
4.9c Materials Price Index: Asian Carriers 53
4.10 Japanese Yen vs. SUS 55
4.11 Canadian Dollar vs. SUS 56
4.12 French Franc vs. SUS 56
4.13 Swedish Krona vs. SUS 57
4.14 Deutsche Mark vs. SUS 57
4.15 Labour Price vs. Exchange Rate: Japan Airlines 58
4.16 Non-Labour Price vs. Exchange Rate: Japan Airlines 58
4.17 Labour Price vs. Exchange Rate: Air Canada 59
4.18 Non-Labour Price vs. Exchange Rate: Air Canada 59
4.19 Labour Price vs. Exchange Rate: Air France 60
4.20 Non-Labour Price vs. Exchange Rate: Air France 60
4.21 Labour Price vs. Exchange Rate: SAS 61
4.22 Non-Labour Price vs. Exchange Rate: SAS 61
4.23 Labour Price vs. Exchange Rate: Lufthansa 62
4.24 Non-Labour Price vs. Exchange Rate: Lufthansa 62
5.la Airline Output Index: North American Carriers 71
5.1b Airline Output Index: European Carriers 72
ix
5.1c Airline Output Index: Asian Carriers 73
5.2a Airline Input Index: North American Carriers 74
5.2b Airline Input Index: European Carriers 75
5.2c Airline Input Index: Asian Carriers 76
5.3a Labour Efficiency Index: North American Carriers 79
5.3b Labour Efficiency Index: European Carriers 79
5.3c Labour Efficiency Index: Asian Carriers 80
5.4a Fuel Efficiency Index: North American Carriers 82
5.4b Fuel Efficiency Index: European Carriers 83
5.4c Fuel Efficiency Index: Asian Carriers 83
5.5a Aircraft Efficiency Index: North American Carriers 85
5.5b Aircraft Efficiency Index: European Carriers 86
5.5c Aircraft Efficiency Index: Asian Carriers 86
5.6 Aircraft Efficiency vs. Aircraft Utilization 1993 87
5.7a Materials Efficiency Index: North American Carriers 89
5.7b Materials Efficiency Index: European Carriers 89
5.7c Materials Efficiency Index: Asian Carriers 90
6.1a Gross TFP Index: North American Carriers 94
6.1b Gross TFP Index: European Carriers 95
6.1c Gross TFP Index: Asian Carriers 96
6.2a Residual TFP Index: North American Carriers 101
6.2b Residual TFP Index: European Carriers 102
6.2c Residual TFP Index: Asian Carriers 103
6.3a Average Residual TFP Index 104
6.3b Average Residual TFP Index of 3 Majors 105
6.4a SF Efficiency Index: North American Carriers 110
6.4b SF Efficiency Index: European Carriers 111
6.4c SF Efficiency Index: Asian Carriers 112
6.5 Alternative Efficiency Estimates: American Airlines 116
6.6 Alternative Efficiency Estimates: United Airlines 116
6.7 Alternative Efficiency Estimates: Delta Airlines 117
6.8 Alternative Efficiency Estimates: Northwest 117
6.9 Alternative Efficiency Estimates: US Air 118
6.10 Alternative Efficiency Estimates: Continental 118
6.11 Alternative Efficiency Estimates: Air Canada 119
x Figures
6.12 Alternative Efficiency Estimates: Canadian Airlines International 119
6.13 Alternative Efficiency Estimates: Lufthansa 120
6.14 Alternative Efficiency Estimates: British Airways 120
6.15 Alternative Efficiency Estimates: Air France 121
6.16 Alternative Efficiency Estimates: SAS 121
6.17 Alternative Efficiency Estimates: KLM 122
6.18 Alternative Efficiency Estimates: Swissair 122
6.19 Alternative Efficiency Estimates: Iberia 123
6.20 Alternative Efficiency Estimates: Japan Airlines 123
6.21 Alternative Efficiency Estimates: All Nippon Airways 124
6.22 Alternative Efficiency Estimates: Singapore Airlines 124
6.23 Alternative Efficiency Estimates: Korean Air 125
6.24 Alternative Efficiency Estimates: Cathay Pacific 125
6.25 Alternative Efficiency Estimates: Qantas 126
6.26 Alternative Efficiency Estimates: Thai Airways 126
7.1 Airline Costs by Category 1995 128
7.2a Airline Labour Cost Share: North American Carriers 130
7.2b Airline Labour Cost Share: European Carriers 131
7.2c Airline Labour Cost Share: Asian Carriers 131
7.3a Airline Fuel Cost Share: North American Carriers 132
7.3b Airline Fuel Cost Share: European Carriers 133
7.3c Airline Fuel Cost Share: Asian Carriers 133
7.4a Airline Capital Cost Share: North American Carriers 135
7.4b Airline Capital Cost Share: European Carriers 135
7.4c Airline Capital Cost Share: Asian Carriers 136
7.5a Airline Materials Cost Share: North American Carriers 137
7.5b Airline Materials Cost Share: European Carriers 138
7.5c Airline Materials Cost Share: Asian Carriers 138
7.6a Unit Cost Index: North American Carriers 140
7.6b Unit Cost Index: European Carriers 141
7.6c Unit Cost Index: Asian Carriers 142
7.7 Unit Cost vs. Stage Length 1995 144
7.8 Unit Cost vs. Load Factor 1995 145
7.9 Unit Cost vs. Input Price 1995 147
7. lOa Unit Cost vs. Efficiency 1993, with Residual TFP Index 148
7. lOb Unit Cost vs. Efficiency 1993, with SF Efficiency Index 149