What drives Indian Airlines operational expense: An econometric model

Abstract

This paper attempts to measure an impact of various variables on the operational expense of Indian Airlines using data available with Directorate General of Civil Aviation for the period of 10 years, i.e. from the year 2007–2008 to the year 2016–2017. In this paper, five variables i.e. average seats per kilometer, average payload, average stage length, average fuel price and ownership of an airline were regressed to expense/revenue passenger kilometer to measure their contribution towards airlines total operational cost. The regression model developed from conceptual framework provides strong evidence that these selected variables have significant influence over the operational expense of an airline. It is observed that these variables dominate airline operating expense and together these variables explain 80.9% of the model. Hence, consideration and management of these variables can improve operational cost efficiency of airlines making them sustainable in a competitive market.