Sustainability and Economics of Aviation Industry

Aviation draws people attention, not only because it is a dream of human race to fly or the association to vacations, but its role in our modern economies. It is, first of all, an incredible investment, such as building airports, buying aircrafts, lands, control systems…etc. There are great business opportunities as well as risks. Moreover, the operation of airports, airlines or aircraft manufacturing generate tremendous incomes and jobs, often vital to cities heavily relay on these business. Furthermore, politic issues, such as regulations, agreements, ownerships and business decisions in company level, are shaping the market. Last but not least, enhanced by aviation, the connectivity and attractiveness of city induce economic benefit in tourism, business and so on, are very seductive to governors hoping to exploit its economic potential. However, just like any aspect of economics, there are externalities, which is not always captured nor considered by decision makers. Externality is always the first question I ask. To quantify and internalize them will enhance market efficiency and the fairness of society. Furthermore, the trend and abnormality are crucial in this uncertain world if we want to predict the future. Focusing on econometrics, i.e. applying statistical tools on economic data to spot estimators and to set models, reference points for discussion or decision could be provided while arousing the awareness of less-acknowledged matters by including them in the models. Three papers are presented in this report. First of all, as the fastest growing transport mode, aviation sustainability and environmental costs are generally concerned. We tried to address the noise and emission of the global aircraft fleet and to argue the current technology progress is not vigorous enough, while examining the trade off of these externalities. We find a statistically significant impact of incremental technical progress on all environmental externalities. Substantial innovation is found to have positive effect on per-passenger externalities. These results point to the need for incentives in aviation technical progress. Secondly, the blooming of passenger traffic, particularly contributed by low cost airlines across Europe is shaping the air transport market, regulations and policies. By observing the carbon dioxide footprint of flights departing from Lombardy region, we find distinguished characteristics of LCC and also capture the impact of air traffic policies of government and airlines. we found that European non-environmental-oriented policies brought environmental benefits: Low cost carriers, their entrance as a consequence of liberalization, perform 18.24% to 24.50% better in terms of emission efficiency; Italian aviation policies (traffic distribution rule on Linate airport) have no significant effect while a drop of 2.61% CO2 level is observed, ceteris paribus, after the dehubbing of the national airline from Malpensa airport. We also confirm the annual improvement of aviation technology to be 1.9% while such effect is outweighed by the growth of traffic volume. Last but not least, air transport generates economic benefit to airlines, airports, local areas and countries. While the movement of people is well studied, we explore the benefit of movement of goods by air cargo, which is playing an essential role in new economies characterized by high-cost and time sensitive goods. We conclude that one percentage increase in total value export of good induces 0.47% increase in cargo volume. The marginal impact of an additional destination to cargo volume is 1.4%. We also provide evidence in the relationship of growth in air cargo volume with increasing online purchase in Europe.Aviation draws people attention, not only because it is a dream of human race to fly or the association to vacations, but its role in our modern economies. It is, first of all, an incredible investment, such as building airports, buying aircrafts, lands, control systems…etc. There are great business opportunities as well as risks. Moreover, the operation of airports, airlines or aircraft manufacturing generate tremendous incomes and jobs, often vital to cities heavily relay on these business. Furthermore, politic issues, such as regulations, agreements, ownerships and business decisions in company level, are shaping the market. Last but not least, enhanced by aviation, the connectivity and attractiveness of city induce economic benefit in tourism, business and so on, are very seductive to governors hoping to exploit its economic potential. However, just like any aspect of economics, there are externalities, which is not always captured nor considered by decision makers. Externality is always the first question I ask. To quantify and internalize them will enhance market efficiency and the fairness of society. Furthermore, the trend and abnormality are crucial in this uncertain world if we want to predict the future. Focusing on econometrics, i.e. applying statistical tools on economic data to spot estimators and to set models, reference points for discussion or decision could be provided while arousing the awareness of less-acknowledged matters by including them in the models. Three papers are presented in this report. First of all, as the fastest growing transport mode, aviation sustainability and environmental costs are generally concerned. We tried to address the noise and emission of the global aircraft fleet and to argue the current technology progress is not vigorous enough, while examining the trade off of these externalities. We find a statistically significant impact of incremental technical progress on all environmental externalities. Substantial innovation is found to have positive effect on per-passenger externalities. These results point to the need for incentives in aviation technical progress. Secondly, the blooming of passenger traffic, particularly contributed by low cost airlines across Europe is shaping the air transport market, regulations and policies. By observing the carbon dioxide footprint of flights departing from Lombardy region, we find distinguished characteristics of LCC and also capture the impact of air traffic policies of government and airlines. we found that European non-environmental-oriented policies brought environmental benefits: Low cost carriers, their entrance as a consequence of liberalization, perform 18.24% to 24.50% better in terms of emission efficiency; Italian aviation policies (traffic distribution rule on Linate airport) have no significant effect while a drop of 2.61% CO2 level is observed, ceteris paribus, after the dehubbing of the national airline from Malpensa airport. We also confirm the annual improvement of aviation technology to be 1.9% while such effect is outweighed by the growth of traffic volume. Last but not least, air transport generates economic benefit to airlines, airports, local areas and countries. While the movement of people is well studied, we explore the benefit of movement of goods by air cargo, which is playing an essential role in new economies characterized by high-cost and time sensitive goods. We conclude that one percentage increase in total value export of good induces 0.47% increase in cargo volume. The marginal impact of an additional destination to cargo volume is 1.4%. We also provide evidence in the relationship of growth in air cargo volume with increasing online purchase in Europe