Search

In this paper, an empirical framework is developed using economic theories to examine the relation-ships between variable costs and levels of activities at the Federal Aviation Administration’s (FAA) en route centers. Using data for three fiscal years and employing time-series pooled cross section econometrics, we have found that the Air Traffic Organization’s (ATO) service provisions in the en route centers have some economies of scale. Furthermore, we have found that while controllers’ wage is important, it is not statistically significant in unit cost measured in aircraft flight operation counts. However, it is statistically significant when unit variable cost is measured and estimated in terms of aircraft flight operation hours. We have also found that degree of complexity, a measure of service attributes, does not impact cost. These findings, combined with on-going policy discussion on users’ fees, imply that ATO may be well positioned to implement average cost pricing if cost is to be fully recovered for en route services. The implementation of marginal cost pricing may require external funding, perhaps from general funds of the U.S. Treasury.