Peter Morrell

Aircraft noise social cost and charge mechanisms – a case study of Amsterdam Airport Schiphol

Abstract The increasing trend of charging for aircraft noise nuisance to encourage the sustainable development of the air transport industry has resulted in a need to evaluate the real social costs of such externalities for the formulation of effective charge mechanisms. After comparing the current charge mechanisms at world airports as well as reviewing existing externality measurements, mathematical models are developed to calculate the noise social cost in monetary terms, and noise charge mechanisms are subsequently established. The hedonic price method is applied to calculate the annual social cost of aircraft noise during the landing and take-off stages of the flight. This is done by estimating the implicit costs of aircraft noise imposed through a decline in property values in the vicinity of the airport. The empirical results, using Amsterdam Airport Schiphol as the case study, show that the current noise charge level imposed by the Dutch Government is lower than the actual noise social cost resulting from aircraft movements. Several noise charge mechanism scenarios are derived according to the modelling results, as well as the environmental objectives of the airport related authorities.

Airline Jet Fuel Hedging: Theory and Practice

Abstract Most international airlines hedge fuel costs, but the theoretical justification behind this action is weak. The paper explores the nature and extent of airline fuel hedging and asks why airlines hedge. The availability of hedging instruments is first discussed, with the most liquid markets in crude and exchange traded contracts. Aviation fuel contracts are possible, but with counter‐party risk. Most major passenger airlines with sufficient cash and credit now hedge at least part of their future needs. Hedging does protect profits against a sudden upturn in crude prices caused by political and consumer uncertainty leading to slower economic growth. However, if higher oil prices are induced by strong economic growth and oil supply constraints, hedging increases volatility with hedging gains reinforcing improved profits from higher traffic and improved yields. If hedging does not reduce volatility, it may still have an accounting role in moving profits from one time period to another, insure against bankruptcy, and signal the competence of management to investors and other stakeholders.

AN EVALUATION OF AIRLINE BETA VALUES AND THEIR APPLICATION IN CALCULATING THE COST OF EQUITY CAPITAL

This paper focuses on the calculation of the cost of equity capital in a sample of airlines, in comparison to industry-calculated values. The approach usually taken is to apply the Capital Asset Pricing Model to airline stock prices and market indices. The research shows that the calculated I² values are sensitive to the precise methodology and calculations used. Further, the low regression model fits indicate the Capital Asset Pricing Model may not be the most suitable model for I² value calculations. The emerging I² values are lower than expected, and possible causes of this are discussed.

AIRLINE LABOUR COST REDUCTION: POST-LIBERALISATION EXPERIENCE IN THE USA AND EUROPE.

US and European carriers have been developing strategies to reduce costs in response to the growing competition in their markets following airline deregulation in the USA since 1978, and liberalisation in Europe since 1988. The most obvious area of costs for airlines to tackle has been labour. This paper analyses trends in labour unit costs (labour expenses per available tonne kilometre) of major US and European carriers from 1978 and 1985 respectively. The results indicate that both US and European airlines have been successful in reducing labour unit costs. This was achieved in the US by some reduction in real wages (labour costs per employee) and periods of increased productivity (ATKs per employee). European airlines reduced unit labour costs by productivity increases, offset by increases in real wage levels. In Europe, some reduction in real wage levels might be expected, following the US experience and in order that they might achieve globally competitive unit labour costs. These might be accompanied by the more widespread use of profit sharing and stock options.

EVALUATION AND IMPLICATIONS OF ENVIRONMENTAL CHARGES ON COMMERCIAL FLIGHTS.

Environmental charges are one of the economic instruments for controlling externalities. Their application to commercial flights has become a preferred method of encouraging the sustainable development of the air transport industry. Two kinds of externalities, aircraft noise and engine emissions, both generating profound impacts on human beings and on the environment, are considered here. The hedonic price method is applied to calculate the social cost of aircraft noise during the landing and take-off stages of the flight. The marginal impact of each flight with specific aircraft/engine combinations is derived for the allocation of aggregate noise social costs. In contrast, the dose - response method is applied to estimate the social cost of each engine exhaust pollutant during different flight modes. The combination of aircraft noise and engine emissions social costs is then evaluated on the basis of several environmental charge mechanism scenarios, using Amsterdam Airport Schiphol as a case study. It is...

KLM AND NORTHWEST: A SURVEY OF THE IMPACT OF A PASSENGER ALLIANCE ON CARGO SERVICE CHARACTERISTICS

This paper identifies and quantifies the impact of a major passenger alliance, between KLM and Northwest Airlines, on the cargo service characteristics of one of the partners, KLM. The hypothesis that the KLM/Northwest Airlines passenger alliance had led to a decline in the quantity and quality of cargo service connections is rejected, even though the first years of the alliance clearly indicate deteriorated cargo layover times. The number of possible connections and the inbound and total routing belly-hold capacity increased during the time-span considered for the research. Also, the cargo layover times eventually declined after an initial increase. Different samples of routes connecting through Minneapolis, Detroit, New York, and Chicago (the latter being KLM Cargos hub where interlining with United Airlines is feasible) all demonstrate a consistent positive impact. Partner connections eventually outperformed interlining.

Airline productivity redefined: An analysis of U.S. and European carriers

Productivity, in terms of net value added per man-year of labor and capital input, provides a more useful yardstick of airline efficiency than the widely used indices representing average unit costs or labor productivity. Large variations in productivity between airlines, in particular between U.S. and European airlines, can be explained almost entirely by differences in level of service, demand patterns and route characteristics. A regression model calibrated on 1975 data for fourteen U.S. and fourteen European scheduled airlines indicates that productivity could be increased by changes in network shape though a more liberal exchange of traffic rights, greater specialization (in particular the limited involvement of scheduled airlines in the very low yield charter market) and consumer choice — by offering higher frequency, multi-city services.

China's Air Cargo Demand: Future Market Developments and Implications

China’s economy has been rapidly growing with an average growth rate of 10% since the 1990s. China’s transformation, undoubtedly in response to its robust economy growth, has certainty become both so-called “the world’s biggest market” and the “world’s factory” in relation to its economy-related changes over the past decades. As a result, the perspective of China’s air transport, in general, has been regarded as a fertile and competitive market in the current stage and even future years. The segment of air cargo services, in particular, is quite attractive and emerging industry in China’s market recently, so that the competitors from all over the world are eager to scramble for part of China’s air cargo market. The purposes of the paper are to: (a) provide an analysis and the relationship between economic trends and air cargo traffic in China; and (b) forecast the aggregate demand of China’s air cargo by using econometric method and extrapolate specific projections at China’s major airports. In order to further analyze the potential demand and competition of air cargo market China, Hong Kong d Taiwan, the paper will also provide an overall discussion on the interaction for the forecasting period.