ECONOMIES OF SCALE IN THE AIRLINE INDUSTRY - THE EVIDENCE REVISITED

This paper reviews the empirical literature on economies of scale in the airline industry. It is argued that the existing evidence is not definitive on the widely held view that constant returns to scale prevail. What most of the literature has established is that various aggregate measures of size, without adequate correction for network or technological characteristics, do not confer, per se, any measurable cost advantages. However, more recent findings, highlighting the multiproduct character of the industry, both in terms of scale and scope as well as demand-related effects, indicate that there are potential cost advantages with airline size.