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Example research essay topic: Rio De Janeiro Air Transportation - 1,866 words

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Introduction The View Area So Paulo, known by the great public as VASP Brazilian Airlines, was created in November of 1933, in So Paulo. The company at first was investor owned and its first planes were two Monospar, bought from an English airline. Even though it had a good beginning, the company had constant losses and the only solution to solve the crisis was asking for government help. On March of 1935, the So Paulo government agreed to help the company, not lending money but making it a public company owned half by the state and half by the city of So Paulo. The VASP owners agreed with that decision, because it was the only way to avoid bankruptcy. After decades under government control, in 1988, the So Paulo state told the press that it wished to privatize the company because it still had monthly losses.

On October of 1990, on a public auction, the VOE/CANHEDO group, represented by the Canhedo Group and the VASP employers, bought the company for US$ 44 million dollars. Until today, the company is owned by the VOE/CANHEDO group. After the reelection of Fernando Henrique Cardoso as President of Brazil, the brazilian central bank decided to devaluate its currency and the airlines suffered a lot because its debts were in US dollars. One of the biggest problems that VASP faced was that it had earnings on brazilian currency and had costs in US dollars. Q Undergraduate Student of EPGE/FGV; E-mail: While VASP was facing all this trouble, in 2001, the low fare airlines boom arrived in Brazil. The GOL Links Areas was a mimic of Jet Blue 1.

Its prices were at least 40 % less than the airlines operating in Brazil and it did attract costumers. The meal served inside the plane is quite simple, just cold sandwiches and cereal bars. VASP that could not compete with the brazilian biggest airlines, VARIG and TAM, now had a competitor: GOL. At the end of 2002, GOL passed VASP on the brazilian airline market, making VASP the 4 th brazilian airline, after VARIG, TAM and GOL.

Recently, one of VASP airplanes had problems while flying to Fortaleza airport, Pinto Martins. A week later, another airplane flying from So Paulo to Curitiba had problems after landing. The land crew tried to fix the problem and after it took off to continue the flight, the planes remained and the plane had to go back to Curitiba 2. One of the biggest brazilian newspapers said that the VASP fleet was from the 1970 s. The VASP frequent flyers were shocked. Nowadays, VASP and GOL compete for the third place of the brazilian airline market.

Methodology According to the microeconomics theory, the demand for a certain object depends on the price, the price of other similar object and the budget constraint. To help the study, the quality of services offered by the airlines besides the ones discussed above, we can include the frequency delay 3 and flight time[Young (1972) and Anderson & Kraus (1981) ]. Our aim will be to analyze how the quality of services can affect the demand for air transportation[Douglas & Miller (1974), Anderson & Kraus (1981) and Trapani & Olson (1982) ]. A possible doubt that can come one your mind is how a passenger could measure the age of the airline that he is fixing to board. The answer it is simple. An older airplane looks are not good.

It looks like it had received a complete patchwork. Indeed, an old airplane with those kinds of looks could worry some of the passengers. The data analyzed will be about the Rio de Janeiro So Paulo flight, because its a major airline route. Three hundred thousand people use this route monthly. As discussed earlier, VASP tries to get back the the d place of the brazilian airline market, so our data will just include GOL and VASP passengers.

For the Rio de Janeiro So Paulo route, time is very important because the major part is businessmen. We will assume that t is the complete flight time, including flight time, time needed to get to the airport and the schedule delay 4. Assuming that t is a function of F, the number of flights offered by the airlines composes it. (1) () Chris Isidore (2002) 2 Folk de So Paulo newspaper, may 2004. 3 The absolute difference between the most desired time to fly and the flight time. 4 Same as frequency delay; see Douglas & Miller (1974) The demand for flights of the Rio de Janeiro So Paulo route will be a function of the place ticket price p, the complete flight time t and an X variable that measures the quality of services offered. (2) Q = Q (p + t (F), X) Where Q is the number of plane seats demanded. Following Gronau 5, the full price is q = p + t (F) and it follows) As can be seen, the impact of the price on the demand for air transportation is negative and the impact of the number of flights offered is positive as we expected. The flight time between Rio de Janeiro domestic airport and So Paulo domestic airport is about 45 minutes.

The difference between the speed of the airplanes used on this route is minimal, so we assume as zero. The difference in time of the flights of GOL and VASP are also minimal, so we assume it to be zero as we ll. Both airlines have the same schedule delay. After that we eliminate the variable t of our demand function and the new demand is: (5) Q = Q (p, X) The new demand of the VASP and GOL passengers is function of the price and the quality of services. The offered prices of both airlines are also alike. It does not have mileage programs and it just operate domestic flights.

The services provided by these airlines are quite alike, so we now assume tha t the demand will be just function of the price. (6) Q = Q (p) 5 Gronau (1980) We cannot forget that the age of the fleet could affect the demand for air transportation of these airlines. GOL uses on this route Boeing's 737 - 7006 and its from the 90 s while VASP uses 737 - 200 / 300 from the 70 s. We will assume on this model that as old the plane is more hours it had flight. The budget constraint of the passenger will not be considered because we are going to use the Taaffe s passenger definition[Taaffe (1962) ] this reference may be old, but it had not changed much since now. The demand for GOL passengers could include others aspects because it can compete with VARIG and TAM, however VASP can just compete with GOL and its demand would be: (7) QVASP = Q (p VASP, p GOL, J) The variable J represents the airplane age.

We expect in our model that the airplane age affects negatively the demand function: (8) < 0 J VASP Q The econometric model needed to solve this puzzle is called linear probability model (LPM 7). We want to see the impact (dj) on the probability of success when the dependent variable (xj) suffers some variation: (9) j j DP (y = 1 x) = d x Mutatis mutandis, the variation on the probability of failure: (10) DP (y = 0 x) = 1 - DP (y = 1 x) After knowing what to use to solve this puzzle, we now can come up with a regression equation to measure the effects of the age of the plane on the demand for air transportation. (11) = y +y +y +y 2 + e 0 1 2 3 flybase price plane age plane age 6 For further information visit Boeing website. 7 Wooldridge (2002) Where flybase is a dummy variable that assumes 1 if the passenger flew VASP and 0 if the passenger flew GOL. The dependent variable price represents the price paid by the passenger to fly (R$). The variable plane age represents the age of the airplane that the passenger used. (years). 0 y is the intercept of the equation while the i y are the slopes of the dependent variables.

The quadratic variable plane age 2 was included because we want to study also the positives or negatives marginal effects of the variable plane age. The marginal effect would be: (12) plane age plane age flybase 2 3 = y + 2 y After these problems that VASP faced with its airplanes, I think it would be important to analyze if the age of the airplane does affect the demand for air transportation. In order to do this I would use cross sectional data. The econometric model used, as discussed above, would be the linear probability model (LPM). The estimation method used would be generalized least squares (GLS). 8 The need of this method is why we have the risk of facing heteroskedasticy. The Wald test is needed for the variables and the Shapiro-Wilk searching for outliers.

Conclusions Unfortunately this research could not be finished because VASP went bankrupt and lost its permission to fly in March of 2005. However the model discussed above could be used to study the relationship between the demand of two airlines, just some modifications needed to be done. But indeed I know that this model would be helpful for further works. 8 Wooldridge (2002) References Abouchar, A. (1970) Air Transport Demand, Congestion Cost, and the Theory of Optimal Airport Use. Journal of American Statistical Association, v. 3, n. 3, p. 463 - 475. Anderson J. E, Kraus, M. (1981) Quality of Service and the Demand for Air Travel The Review of Economics and Statistics.

v. 63. De Vasp, A. S (1975) The Effect of Price and Entry Regulation on Airline Output, Capacity and Efficiency The Bell Journal of Economics v. 6, p. 327 - 345. Departamento de Asian Civil web Douglas, G. W. , Miller III J.

C (1974) Quality Competition, Industry Equilibrium and Efficiency in the Price-Constrained Airline Market American Economic Review v. 64, p. 67 - 76. Infraero web Gronau, R. (1980) The Value of Time in Passenger Transportation: The Demand for Air Travel Occasional paper 109, National Bureau of Economic Research, New York. Isidore, C. (2002) Attack of low fare airlines CNNmoney, December 9, 2002 Morrison, S. , and Winston, C. (1995), The Evolution of the Airline Industry. Brookings Institution Taaffe, E. J. (1956) Air Transportation and United States Urban Distribution Geographical Review 46, 219 - 238. Trapani, J.

M. , Olson, C. V. (1982), An Analysis of the Impact of Open Entry on Price and the Quality of Service in the Airline Industry The Review of Economics and Statistics, 1982, vol. 64, issue 1, pages 67 - 76 Verleger Jr. P. K. (1972) Models of the Demand for Air Transportation The Bell Journal of Economics and Management Service v. 3, p. 437 - 457 Wooldridge, J. (2002) Econometric Analysis of Cross Section and Panel Data.

Cambridge, MA: MIT Press Young, K. H. (1972), Cross-Sectional Demand Models: Estimates and Tests, " Journal of Regional Science, 9


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Research essay sample on Rio De Janeiro Air Transportation

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