Excess capacity: A permanent characteristic of US airlines?

This paper examines the permanence of excess capacity in the US airline ind ustry. To avoid the problems with the standard engineering measure of capac ity utilization, load factor, we define and measure capacity as an economic concept. Two measures of economic capacity utilization are then computed - one, a demand-based measure and the other an output-based measure of capac ity utilization. Both measures share little in common with the standard eng ineering measure (load factor) and reveal some interesting attributes of ai rline travel demand. This paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulatio n. Specifically, it is found that deregulation with the concomitant rationa lization of route structures enabled airlines to move closer to their optim al levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered. (C) 1998 John W iley & Sons, Ltd.