Operating costs and capacity in the airline industry

Wen-Hsien Tsai; Lopin Kuo

doi:10.1016/j.jairtraman.2004.03.004

Operating costs and capacity in the airline industry

J Air Transp Manag. 2004 Jul;10(4):269-275. doi: 10.1016/j.jairtraman.2004.03.004. Epub 2004 May 25.

Authors

Wen-Hsien Tsai¹, Lopin Kuo²

Affiliations

¹ Department of Business Administration, National Central University, Chung-Li, Taiwan, Republic of China.
² Department of International Trade, Vanung University, Chung-Li, Taiwan, Republic of China.

Abstract

This study illustrates how to calculate accurate costs, including the operating costs for individual airplanes and flights, as well as the costs per available seat kilometers, and per available ton kilometers using activity based costing. It also identifies the main activity items and drivers of each airplane and flight. Additionally, it uses a case study to illustrate the calculation of production variance, marketing variance and expected idle passenger capacity in the airline industry. This is useful information when the purchase or lease an airplane under the conditions of idle capacity.

Keywords: Activity-based costing (ABC); Airline industry; Idle passenger capacity; Operating costs.