Economics and Finance Faculty Publications and Presentations
Demand uncertainty and capacity utilization in airlines
Document Type
Article
Publication Date
8-2014
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.
Recommended Citation
Escobari, D., Lee, J. Demand uncertainty and capacity utilization in airlines. Empir Econ 47, 1–19 (2014). https://doi.org/10.1007/s00181-013-0725-2
Publication Title
Empir Econ
DOI
10.1007/s00181-013-0725-2
Comments
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