Microeconomics in Aviation Industry

Essay by liedetectorA+, June 2006

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The approach used by airlines to manage complex route networks is now helping other companies manage their software networks. Within nine months, a retail bank overcomes the limitations of thirty-year-old "legacy" microeconomics systems to launch a high-tech operation that offers its customers a complete range of banking services over the telephone. Another bank is able to roll out, within three months of an acquisition, information systems that deliver the same level of service to all customers at all branches, new and old. (Richard 2002, 177)

For these companies, Microeconomics has genuinely become an enabler of change that boosts competitive performance. The secret: a "hub -and- spoke" approach to building the kind of information systems that lend themselves to rapid, continual improvement. One US bank has even moved to a hub -and- spoke system, with more than 10,000 user interfaces, internal and external, as its overall architectural choice.

Stated preference models were designed using sets of orthogonal decision attributes, and pilot utilities were estimated as a function of these attributes.

This approach, based on the work of McFadden (Domencich & McFadden, 1975; McFadden, 1986), provides a means for modeling the cognitive mechanisms that are typically absent in econometric specifications of choice. The inclusion of decision makers' generalized attitudes and beliefs in the modeling process begins to open the black box that governs choice behavior. The results of our analyses demonstrate that general aviation pilots make decisions about airport use as reasoned adjustments to airport features that either increase or decrease the pilot's expected value or utility for the airport. The findings, moreover, show that pilots find some airport attributes to be compelling and others to exert a very small impa ct on the choice of an airport.

There is limited evidence in this study to suggest that differences between...