Abstract: “Demand uncertainty is the crucial concerns of airline production planning. The airlines regularly fly their airplane below full capacity because fare and capacity need to be set before it operates. During this period, actual demand is more likely to deviate from its forecast. Unsold tickets would lead to lower operating revenue and create unnecessary costs of operation. This study aims at investigating the empirical impact of firm-level volatility on production cost and efficiency. The purposes are to examine the relationship between demand uncertainty and operating cost of an airline, and empirically measure the airline cost competitiveness when taking demand volatility into consideration.”

Keywords: demand uncertainty, airline’s cost, cost efficiency