The optimal aircraft size and economies of scale and stage length in Iran Air domestic routes

This study examines the relationship between aircraft cost and size of commercial passenger jets for IranAir in its selected domestic routes over the period 2005-2008. Based on a translog model, we used an econometric cost function developed by Wei and Hansen (2003) for aircraft operating cost to investigate economies of scale and stage length and to measure the optimal size for the domestic services.
The finding of this paper show that economies of aircraft size and stage lengths exist at the sample mean of the sampled data. Evidence bears out the hypothesis that for any specified stage length there is an optimal size, in which aircraft optimal size in the short-haul market is always smaller than the least-cost aircraft size in the long-haul market, and as market distance increases, so does the size of the least-cost aircraft. The results also suggest that in shorter market the least-cost aircraft size is always smaller than the observed average aircraft whereas in long-haul market it is larger than the observed size. The findings also indicate that the scale properties of the cost function are not changed if pilot unit cost is treated as endogenous, since it is correlated with size.