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Shih-Hsien Chuang
 
''Cost pass-through in the airline industry: price responses and asymmetries''
( 2020, Vol. 40 No.1 )
 
 
We investigate how fuel cost shocks are passed to air travel fares. Two-staged least squares estimators are used with retail gasoline and crude oil prices employed as instruments. Our results suggest that the cost shock effect on airfare is higher for positive shocks than for negative shocks. Such effect mostly occurs approximately in the same quarter, and then it reaches to the long run equilibrium. The timing of the effect may be explained by ticket purchasing and/or carrier fuel hedging decisions. Significant differentials are found for different business models, slot capacity, service classes, and market structure.
 
 
Keywords: Asymmetric responses, Jet fuel, Pass-through, Airline industry
JEL: L9 - Industry Studies: Transportation and Utilities: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
 
Manuscript Received : Aug 05 2019 Manuscript Accepted : Feb 29 2020

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