For Immediate Release:
April 10, 2018
Ian Savage, TRF President
Ann Warner LLC, TRF VP Public Relations
Paper Presented at TRF
Shows Airline Flight Delays Cost Air Passengers $4 Billion per Year
A study presented at this week’s Annual Transportation Research Forum (TRF) in Minneapolis finds that airline passengers are willing to pay $1.56 per minute to reduce airline flight delays.
Since there were almost 430 million passenger-hours of flight delays between 2002 and 2012, the consumer welfare cost of flight delays amounts to about $4 billion per year. The study also finds that air passengers are willing to pay up to $155 extra, on average, to get a nonstop flight to their destination rather than flight itineraries with an intermediate stop.
The study is based on data on flights among 63 airports in the U.S. from 2002 to 2012 from the Airline Origin and Destination Survey (DB1B) collected by the Bureau of Transportation Statistics (BTS) and from the BTS On-Time Performance Database.
The value that air passengers place on reducing flight delays means that airlines can increase their revenues by reducing flight delays. The paper estimates that a 10-percent reduction in arrival delay results in an average increase in variable profit of 3.95 percent. In general, the increase in profitability results primarily from attracting more passengers rather than from being able to raise fares. The paper estimates that a 10% reduction in arrival delay allows airlines to increase fares by an average of 1.51 percent and increase passenger demand by an average of 2.39 percent, resulting in an increase in variable profit by an average of 3.95 percent.
Of course, it is costly for airlines to reduce flight delays. The paper estimates that the average marginal investment cost per minute of delay improvement starts at $568.13. Moreover, the cost of reducing delays increases the more delays are reduced. Reducing delays by 10 percent raises delay-reduction costs to $581.68 per minute but reducing delays by 25 percent raises the cost per minute of reducing delays to $602.75.
Thinking about this in another way, in quantifying costs incurred by airlines to reduce flight delays, this study estimates that a 10-percent reduction in flight delays requires a 2.39% increase in delay-related marginal investment cost per minute of improvement, while a 25-percent reduction in flight delays requires a 6.10% increase in delay-related marginal investment cost per minute of improvement.
The Transportation Research Forum (TRF) is an independent organization of transportation professionals founded in 1958 to provide an impartial meeting ground for carriers, shippers, government officials, consultants, university researchers, suppliers, and others seeking an exchange of information and ideas on both passenger and freight transportation. TRF conducts a national Annual Forum, and has chapters in New York, Washington DC, Chicago, Minneapolis-St. Paul, St. Louis, and South Korea. www.trf.org
About the Author
The authors of the paper are Philip Gayle and Jules O. Yimga. Gayle is Professor of Economics at Kansas State University, and Yimga is Assistant Professor of Business at Embry-Riddle Aeronautical University. The paper is entitled “How much do Consumers Value Air travel On-time Performance, and to what extent are Airlines Motivated to Improve their On-time Performance?”