Key factors contributing to operating cost of short-haul domestic air routes Online publication date: Sun, 11-Oct-2015
by Yu-Chiun Chiou; Chia-Hsin Liu; Chih-Wei Hsieh
International Journal of Aviation Management (IJAM), Vol. 2, No. 3/4, 2015
Abstract: Some domestic air routes are essential for residents living areas where surface transport is hard to reach. To ensure the sustainability of the air service, governments usually regulate the air fares and provide subsidies for local residents and carriers. Since price regulation and subsidy calculation are mostly cost-based and route-based, to identify the key factors contributing to operating cost of air routes is imperial. This study collects monthly panel data of domestic air routes in Taiwan during a six-year period of 2006-2012, to empirically investigate the key factors for operating cost. According to the estimated elasticity, stage length and aircraft type are two most key factors contributing to total cost while aircraft age has the largest effect on both direct cost and average cost. Based on the estimation results and findings of cost characteristics, designs of fare formula and subsidy scheme are then recommended.
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