An Empirical Investigation into the Tradeoffs that Impact On-Time Performance in the Airline Industry

We investigate the tradeoff between aircraft capacity utilization and on-time performance, a key measure of airline quality. Building on prior theory (Porter 1996, Schmenner and Swink 2004) and empirical work (Lapre and Scudder 2004) we expect that airlines that are close to their productivity or asset frontiers would face steeper tradeoffs between utilization and performance, than those that are further away. We test this idea using a detailed 10-year airline industry data set, drawing on queuing theory to disentangle the confounding effects of variability in travel time and capacity flexibility along an aircraft’s route. In accord with and building on the findings of Lapre and Scudder (2004), we find that greater aircraft utilization results in higher delays, with this effect being worse for airlines that are close to their asset frontiers in terms of already being at high levels of aircraft utilization. Also, we find that the negative effect of utilization on delays is greater for aircraft that face higher relative variability in travel time along their routes, and is lower for aircraft on routes with higher capacity flexibility in terms of the ability to substitute in a different aircraft for a particular flight than the one that was originally scheduled. Additionally, we examine how load factor, a measure of how full an airline’s flights are and therefore a key revenue driver, affects on-time performance. Our analysis enables us to explain differences in on-time performance across airlines as a function of key operational variables, and to provide insight on how airlines can improve their on-time performance or their aircraft utilization.