Management Accounting Section Midyear Meeting

Asymmetric Cost Behavior and Operating Strategy in the Airline Industry

• In Event: Cost Structure and Behavior

Abstract

Using data from 2003 to 2019 for the U.S. airline industry, we investigate how airline firms’ cost behavior is associated with two distinctive operating strategies: full-service networks and low-cost point-to-point operations. Full-service networks link resources strategically while low-cost point-to-point service involves resources that are strategically separable. Using revenue passenger miles as an activity-based cost driver for operating costs, we document that cost behavior of full-service carriers (FSCs) is sticky, but cost behavior of low-cost carriers (LCCs) is not sticky. In separate analyses, we also test for stickiness of non-monetary measures of resources used instead of dollar-value operating costs. We find that both the number of employees and the number of flights are sticky with respect to RPMs for FSCs, but are not sticky for LCCs.

Authors

• Mark C. Anderson, University of Calgary

• Raj Mashruwala, University of Calgary

• Zhimin Yu, University of Houston–Downtown