Why are regional jets less used in emerging economies? A real options valuation approach and policy implications

Hu, Qiwei and Zhang, Anming and Zhang, Yahua ORCID: https://orcid.org/0000-0003-1522-3402 (2019) Why are regional jets less used in emerging economies? A real options valuation approach and policy implications. Transport Policy, 79. pp. 125-136. ISSN 0967-070X


Abstract

In this paper we offer an explanation for why regional jets are less used in emerging economies by using a real options valuation (ROV) approach. Our ROV analysis is based on the observation that airlines are operating under different development and regulatory environments between emerging economies and developed economies. We quantify the values of the options using a case study of aircraft acquisition by airlines in the US, Brazil and China. It is found that although a theoretical value gap (a negative ROV) exists between narrow-body aircraft and regional jets (e.g., between A320 and E190) for the US carrier that operates in the condition of a low initial passenger volume per trip and a low passenger growth rate, the gap weakens and a positive ROV is possible for the Brazilian and Chinese carriers facing a high growth rate. Furthermore, regulatory restrictions faced by Chinese carriers have a positive influence on the ROV that is biased towards narrow-body aircraft over regional jets, although this influence is less than the positive ROV impact from the high growth rate. The managerial and policy implications are also discussed.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Files associated with this item cannot be displayed due to copyright restrictions.
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce (1 July 2013 -)
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce (1 July 2013 -)
Date Deposited: 28 Jan 2020 05:43
Last Modified: 29 Jan 2020 04:31
Uncontrolled Keywords: Aircraft acquisition; Regional jet; Real options; Growth; Regulation; Monte Carlo simulation
Fields of Research : 15 Commerce, Management, Tourism and Services > 1507 Transportation and Freight Services > 150701 Air Transportation and Freight Services
14 Economics > 1402 Applied Economics > 140217 Transport Economics
Socio-Economic Objective: B Economic Development > 88 Transport > 8803 Aerospace Transport > 880302 Air Passenger Transport
Identification Number or DOI: 10.1016/j.tranpol.2019.04.012
URI: http://eprints.usq.edu.au/id/eprint/37454

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