Munich Personal RePEc Archive

Demand Uncertainty and Capacity Utilization in Airlines

Escobari, Diego and Lee, Jim (2013): Demand Uncertainty and Capacity Utilization in Airlines. Forthcoming in: Empirical Economics

[img]
Preview
PDF
MPRA_paper_46059.pdf

Download (238kB) | Preview

Abstract

This paper studies the relationship between demand uncertainty—the key source of excess capacity—and capacity utilization in the U.S. airline industry. We present a simple theoretical model that predicts that lower demand realizations are associated with higher demand volatility. This prediction is strongly supported by the results of estimating a panel GARCH framework that pools unique data on capacity utilization across different flights and over various departure dates. A one unit increase in the standard deviation of unexpected demand decreases capacity utilization by 21 percentage points. The estimation controls for unobserved time-invariant specific characteristics as well as for systematic demand fluctuations.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.