AirplaneCosts-SauderSchoolofBusiness.doc

Aircraft trip cost parameters: A function of stage length and seat capacity William M. Swan Dr. William Swan, Ex-Officio member - ATRS Distinguished FellowChief Economist, Seabury Airline Planning Group, LLC (01) 425 865 0374 2232 157th PL SE Bellevue WA 98008 USA E-mail: bill.swan@ ? And Dr. Nicole Adler, School of Business AdministrationHebrew University of Jerusalem, Mount Scopus 91905 Israele-mail: msnic@huji.ac.il Abstract This paper disaggregates aircraft operating costs into various cost categories and provides background for an engineering approach used to compute a generalized aircraft trip cost function. Engineering cost values for specific airplane designs were generated for a broad spread of operating distances, enabling a direct analysis of the operating cost function and avoiding the problems associated with financial reporting practices. The resulting data points were used to calibrate a cost function for aircraft trip expenses as they vary in seating capacity and distance. This formula and the parameter values are then compared to econometric results, based on historical data. Results are intended to be used to adjust reported costs so that conclusions about industry structure based on cost regressions correctly account for differences in stage lengths and capacities. A Cobb-Douglas cost function is also computed, providing elasticity parameters for both economies of density, through seat capacity, and distance as they would be determined from clean airline-neutral data. The results are particularly useful for route network design because they establish a simple planar connection between frequency, capacity and costs. Although the econometric cost functions are no less accurate, it is generally much less convenient for subsequent analysis. Keywords: Operating cost functions; aircraft; air transport; econometrics. 1. Introduction This research evaluates and presents a cost function for commercial passenger aircraft operating costs. The formula ex