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Total factor productivity in Australian domestic aviation

By Peter Forsyth

Abstract

This paper develops measures of total factor productivity for Australian domestic air transport over the past two decades, and enables comparisons to be made with the productivity of international airlines. In recent years there has been little by way of measurement of productivity performance of the Australian domestic airlines. A major reason for this has been the poor availability of data--data typically available for international airlines are no longer available for the Australian domestic airlines. Strictly speaking, it is no longer possible to measure total factor productivity for the domestic airlines, as critical data are missing. It is possible, however, to fill in the gaps with proxies, which enable useful, albeit imperfect, productivity measures to be developed. These can also be compared to published measures for international airlines. The results enable an assessment of the productivity performance of Australian domestic airlines over the past two decades (and especially over the post deregulation period). They also enable an assessment of the extent to which productivity has caught up with that achieved in well performing airlines overseas. The results also show light on whether there is scope for new airlines, such as the proposed entrant Virgin, to achieve lower costs than the incumbents.

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