HOW DO SUSTAINED CHANGES IN COST OF AIRLINES INFLUENCE AIR TRAFFIC

摘要

The whole air transport industry hinges upon a subtle balance between supply and demand, costs and prices. Due to the increasing fuel prices and the increasing focus on environmental and security issues, a change in airlines' cost is inevitable. 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 16 European Airlines for the period of 1990-2007. In order to have the most complete accounts of these supply side effects on air traffic, we need to disentangle supply side effects from demand side effects. To do so, we specify a generalized McFadden cost function and extent the standard cost analysis to include a demand equation specified according to a nested-logit model which allows us to derive prices and quantities under pure strategy Nash equilibrium. This study differs from previous studies in the way that we jointly estimate a generalized McFadden Cost Function which satisfies global concavity in input prices conditions and demand function for European airlines. We will present our database (ENAC 2007), methodology and our preliminary results.