1. Primary Model Category

2. Summary

ACIM is a tool for projecting growth and demand in both the airline and commercial aircraft industries. The model utilizes high level economic parameters (e.g. fare yields, population growth and labor costs) to create projections of future air travel demand and airline cost functions. It also accounts for future productivity growth through projections of both human productivity enhancement factors and equipment efficiency gains. Human productivity gains are accounted for through reductions in labor price parameters over time. The model also predicts airline costs using parameters representing the aggregate characteristics of airline fleets and other factors to describe airline networks. The projections of air travel demand and airline costs are then combined to create industry-level forecasts of future revenue passenger-miles, number of aircraft in the US fleet and airline operating margins. The model is particularly suitable for projecting the economic benefits that could be expected as a result of improvements in equipment efficiency or modifications of operating procedures that might be achieved from the introduction of new technology.

The ACIM econometric models are created from a number of databases including the US Department of Transportation's (DOT) Origin and Destination (O&D) data record, airline cost data from DOT Form 41, and Census Bureau data on the economic characteristics of Standard Metropolitan Statistical Areas surrounding 85 major airports. The O&D and Census Bureau data were used to model the air travel demand for each of 13 US passenger air carriers (and/or their various manifestations through mergers and acquisitions) from 1970 to 1990. Similarly, the Form 41 data and other sources provided information for cost models for each of the 13 air carriers. Included in the cost models are each carrier's labor costs, the characteristics of its network and its fleet characteristics in terms of numbers and size of various aircraft and efficiency factors for each type of aircraft.

ACIM's validity rests on the extensive historical data bases from which it was created. It accurately portrays the recent history of economic evolution of the airline industry by capturing the data history in relatively simple regression models. The user supplies inputs which characterize a future economic supply and demand situation at high levels and the model projects the airline and aircraft industry economic situation from these inputs using its econometric models. Hence ACIM is an accurate extrapolator of the current industry characteristics, which allows a user to explore the consequences of assumed future economic conditions and industry characteristics through judicious choices of input variables.

3. Input Requirements

The user inputs a series of values which project future annual changes in:

• Demand Variables-fare yield, national income, population growth, and unemployment rate
• Supply Variables-labor, energy, materials, and capital costs
• Network Factors-stage length and load factor
• Capital Attributes-average seats/aircraft, aircraft age, % jet aircraft, % wide body aircraft
• Airline target operating margins over future time may also be input.

4. Outputs

The program outputs are future projections of:

• Domestic and international travel demand for U.S. scheduled passenger air carriers in revenue passenger miles
• Size of the total U.S. scheduled passenger air carrier fleet in numbers of aircraft
• Operating margin for U.S. scheduled passenger aircarrier fleet in percent

5. Major Assumptions

ACIM is based on the assumption that a model, based on data over the period of 1979 through 1990, can be used to create credible estimates of future conditions for the airline and aircraft industries. The validity of this assumption is, to a large extent, dependent upon the quality of the information used to create the model.

The model projects air travel demand forward using a regression model created from past information. Data for the demand model is based on the U.S. Department of Transportation's Origin and Destination record for tickets; coupled with the size and prosperity of the air travel market, inferred from standard economic models for regions surrounding 85 airports. Similarly a cost model was developed to account for labor, energy, materials and capital for 13 U.S. air carriers and/or their evolved manifestations in the period from 1979 through 1990. The primary capital element in the model is aircraft and aircraft productivity factors (e.g. increased fuel economy) are specifically accounted for in the model. Two additional factors, average stage length and passenger load factor, are used to model the effects of each air carrier's network characteristics on costs.

The demand and cost models are configured so that demand and costs can be projected forward in a fashion such that future total industry travel demand, air fleet size, and operating margin can be calculated.

6. Computational Characteristics

The model has been implemented as a spread sheet and is available to run as an application program on either Lotus 1-2-3 or Microsoft Excel. Most current personal computers are capable of running the program.

7. Startup Effort

The model can be used after only a few hours study of the users guide.

8. Modularity and Flexibility

The program was written to produce some rather specific outputs from a set of input variables. Deviations from this specific set of input and output variables would require reprogramming of the model.

9. Status

10. Extent of Model Validation

The model is an accurate replica of past performance and conditions for the U.S. airline industry. Its validity for projecting future conditions in the industry depends upon a continuance of these same kinds of economic conditions in the future.

11. Principle Applications

The principle application of the model is to study the relative advantages which new aircraft technologies can bring to the airline and aircraft industries.

12. Availability

Upon request to Peter F. Kostiuk, Logistics Management Institute

13. Information for Model Evaluation

Model description, users guide, and exercise of the model

14. Contact Point

Peter F. Kostiuk
Logistics Management Institute
2000 Corporate Ridge
McLean, VA 22102-7805
Phone: (703) 917-7427
Email: pkostiuk@lmi.org

15. Summary Evaluation

ACIM was specifically developed as a tool for estimating the relative benefits that might accrue to various new technologies which might be developed to increase the efficiency and/or productivity of future aircraft. Hence, ACIM is not a cost/benefit model as such, but might better be characterized as a module that could be embedded within a larger cost benefit model for the purpose of calculating airline industry supply/demand variables. The model is very easy to use and requires only minimal learning effort on the part of a new user.