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Trans. Planning Journal
| Title | Cost Efficiency and Density Economies in Domestic Airlines after Open-air Policy |
|---|---|
| Author | Shaw-Er Wang & Yen-Chao Wang |
| Summary | Since the announcement of the so-called open-air policy in 1987, the domestic airline market environment in Taiwan has been significantly changed. All airline carriers must improve their managerial performance and maintain a healthy cost structure in order to meet the rising competition. This study examines the effects of allocative distortions on returns to density and input demand in domestic airlines during 1989-1997 by using a non-minimum cost function from the cost efficiency point of view. We generalize a globally concave and flexible cost function by using the symmetric generalized McFadden (SGM) cost function to accommodate allocative distortions for domestic airlines, and estimating the density economies with and without allocative distortions as well as its effect on cost efficiency. The major findings include: (1) By using fuel as the base indicator of relative efficiency, we found the following input factors’ distribution inefficiency for domestic airlines: The distribution inefficiency of labor and capital input factors differs from airline to airline, and is becoming more severe with time; the distribution inefficiency of other factors does not differ very much among airlines but varies with time. It is inefficient from 1989 to 1995 but becomes more efficient during 1996 to 1997; (2) Airline companies have higher economies of density before 1996, but tend to show a constant return to density in 1997 when considering allocative distortions. The technical efficiency of input factors as a whole has declined after the open-air policy; (3) The costs of airlines are increasing significantly due to their distribution inefficiencies; (4) The instrument variable generated through a quasi price function does not have significant influence on cost; this may imply that airline companies in this time period did not exhibit the phenomena of high- quality high-price. |
| Vol. | 30 |
| No. | 4 |
| Page | 923 |
| Year | 2001 |
| Month | 12 |
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