Demand uncertainty and capacity utilization in airlines

Diego Escobari and Jim Lee ()

Empirical Economics, 2014, vol. 47, issue 1, 19 pages

Abstract: This paper studies the relationship between demand uncertainty—the key source of excess capacity—and capacity utilization in the US 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. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Demand uncertainty; Capacity utilization; Airlines; Panel GARCH; GARCH-in-mean; C33; L93 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00181-013-0725-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Demand Uncertainty and Capacity Utilization in Airlines (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:47:y:2014:i:1:p:1-19

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-013-0725-2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().