Aviation infrastructure performance and airline cost: a statistical cost estimation approach

The relationship between the performance of the US National Airspace System (NAS) and airline costs is examined by estimating airline cost functions t hat include NAS performance metrics as arguments, using quarterly data for 10 US domestic airlines. Performance metrics that vary by airline and quart er are developed by applying principal component analysis to seven underlyi ng variables, including average delay, delay variance, and the proportion o f flights that is cancelled. This analysis reveals that variation in the se ven variables can be adequately captured by three or fewer factors, which w e term NAS performance factors. If three factors are used, they can be inte rpretted as "delay", "variability", and "disruption", the latter two of whi ch are merged into a single "irregularity" factor in the two-factor model. Cost function estimation results confirm the anticipated link between NAS p erformance and airline cost. In the cost models with two and three performa nce factors, the irregularity and disruption factors are found to have the strongest cost impacts. These results challenge the prevailing assumption t hat delay reduction is the most important benefit from NAS enhancements. Us ing the estimated cost models, we predict airline cost savings from substan tially improved NAS performance in the range $1-4 billion annually. (C) 200 0 Elsevier Science Ltd. All rights reserved.