Measurement of airlines’ capacity utilization and cost gap: Evidence from low-cost carriers

• To estimate the physical capacity utilization and cost gap between actual and global long-run minimum costs of LCCs.
• The DEA analysis is used to account for the conditions of not-fully competitive markets in real life.
• The local market and global market efficiencies are also investigated.
• To overcome the shortcomings of the Farrell cost efficiency measure when prices differ between LCCs.

The aim of this paper is to evaluate the capacity utilization and cost gap between actual and global long-run minimum costs. Based on the data for thirteen low-cost carriers around the world for the year 2010, an input-oriented data envelopment analysis model is used to estimate the physical capacity utilization and cost gap between actual and global long-run minimum costs. The empirical results show that more than half of low-cost carriers should improve their capacity utilization, and all low-cost carriers should enhance their market efficiency and reduce their excess costs. Of the thirteen low-cost carriers, three should improve their technical efficiency, four should re-distribute the mix of variable inputs, all thirteen should pay lower prices for all variable inputs, and ten should enhance the utilization rate of their fixed factors.