The competitive landscape of air transport in Europe

Competition between airlines and airports increased significantly since the deregulation of the intra-European air transport market in 1997. The passenger has a wider choice in terms of routings and departure airports than twenty-five years ago and pays a lower price. In this paper we investigate in which parts of Europe airline and airport competition are most intense and how the competitive landscape has changed since the liberalisation of the intra-European market.Competition levels are modelled for all air transport markets available to consumers in each western-European municipality using a Multinomial Logit (MNL) model. This allows us to determine how competitive the air transport product available to consumers in each of those municipalities truly is and how competition levels have changed. As opposed to most other competition studies we take all viable direct and indirect flight alternatives into account, as well as competing alternatives from nearby (adjacent) airports. This makes it the most extensive analysis of competition in the European aviation industry performed to date.As expected the results show that airline competition, allowing for grouping of the airlines belonging to the same alliance together, has in general increased since the liberalisation of the intra-European market. This can mainly be ascribed to the rise of the low cost business model. The spatial analysis however shows an uneven outcome. Changes in airline competition are most pronounced in areas that were previously not well served, such as the more remote regions in the United Kingdom, Spain and Italy. In Germany airline competition is lagging behind due to the strong dominance of the STAR alliance. In large parts of Scandinavia, but also in parts of France and Spain, airline competition is considerably less. These areas are often served only by a handful of airports and/or airlines, limiting airline choice and therefore competition.     

A comparative analysis of economic performance of US commercial airports

There have been various agreements between the US commercial airports and the airlines each of which has defined how the risk, responsibilities, and reward of running an airport should be shared among them. The airport–airline financial relationships at the nation’s commercial airports are based on four basic approaches: the residual cost, the compensatory, the hybrid, privatization approaches. In this paper, the authors provide a comprehensive review of airport–airlines financial agreements, and develop an analytical model to measure the financial performance of the US commercial airports. In general, compensatory airports have had a higher marginal contribution to profitability than residual airports.     

What hurts the dominant airlines at hub airports?

This paper estimates a frequency equation to explain the determinants of network airline service levels at their hub airports. Drawing on European data for 2002–2013, we find that network airlines reduce frequencies when the share of low-cost airlines increases both on the route and at the hub airport. On the contrary, frequency choices of network airlines are not affected by competition from low-cost airlines operating in nearby secondary airports. We also find some evidence that mergers in Europe may result in a re-organization of the route structure in favor of the hubs of the larger airline.     

Air deregulation in China and its impact on airline competition 1994–2012

China’s air transportation has experienced rapid growth and major reforms in the past three decades, some of which have been partially successful and are still ongoing today. The paper aims to analyze China’s air deregulation experience over the last two decades and its impact on airline competition from a geographical perspective. After the establishment of the “Big Three” in 2002, the paper reveals that there has been a trade-off between the extent of deregulation and airline competition in China because the central government has tended to strengthen the “Big Three” rather than totally open the market to private and locally owned airlines. The paper uses each airline group as the basic unit of analysis and reveals that (1) the air market has been more concentrated in the “Big Three” as a result of the process of air deregulation; (2) airline competition in over two thirds of the airports and one half of the routes has increased in the last 18 years, but the core airports and trunk routes are chiefly dominated by the “Big Three”. The peripheral airports and thin routes have been operated by private and locally owned airlines; and (3) regionally, airline competition has occurred in most airports of the eastern region, and it is more intense than in the central and western regions. But even here, competition in the eastern region has however decreased in 1994–2012. The three main contributions of the paper are: (1) the use of two measures of competition in the airline market; (2) the analysis of the historical evolution of competition; and (3) an understanding the role of the geography of competition in the Chinese airline market.     

Impacts of the Air France–KLM merger for airlines,airports and air transport users

Excess capacity and low returns have led to consolidation and mergers in the airline market. The joining of KLM and Air France within the SkyTeam alliance has been the most dramatic of these events. This paper looks at the probable effects of the merger on the various players that are immediately affected; airports, airlines and travelers. It does this using the AIR Transport Network COmpetition Model. The analysis finds, in particular, that fears that Schiphol may lose out as a result of the merger may be exaggerated, especially when high-speed rail is added to the mix of modes considered.     

Airport–airline vertical relationships,their effects and regulatory policy implications

This paper examines the forms and effects of vertical relationships between airports and airlines with a focus on the North American and European aviation markets. We find that such vertical relationships enables those participating to achieve various benefits and may be formed as a competitive response to other competing airport–airline alliances. In some cases, vertical airport–airline relationships strengthen the hub status of major airports, leading to increased employment and service quality in local markets. On the other hand, preferential treatment of a particular airline by an airport may enhance that airline’s market power, allowing it to dominate the airport and charge hub premiums. The competition and welfare implications of airport–airline vertical alliances can be complicated and two-sided, subject to the influences of other factors such as the market structures of the airline and airport markets.     

Peripheral market entry,product differentiation,supplier rents and sustainability in the deregulated European aviation market – a case study

Ryanair, in its net margin and passenger numbers compared with its national airline, is the most successful new airline in Europe. The history of the airline is examined briefly and the Ryanair product is analysed. The airline has developed a very low fare product with high staff productivity. It has also tackled costs to airlines of services such as airports, handling, reservations and ticket retailing. Ireland’s island location was an attractive base for a low cost airline and rapid traffic growth has resulted from Ryanair’s entry to the market. The paper examines the sustainability of the low fare Ryanair product in respect of passenger preference, labour markets, and external costs such as airports and reservations. The optimum regulatory environment for the successful operation of low cost airlines is examined in the light of the Ryanair experience.     

Temporal configurations of European airline networks

The deregulation of the US domestic airline industry resulted in the reconfiguration of airline networks into hub-and-spoke systems. In contrast to the US airlines, airlines in Europe already operated spatially concentrated networks long before deregulation. This concentration at the national home-base was the outcome of bilateral traffic rights designated to the national carrier. With a few exemptions, however, most of these star-shaped networks were not coordinated in time. Transfer opportunities at most national airports only existed by accident. Only airports that were operated as gateways to Europe provided planned connectivity between intercontinental flights and European feeder services. The deregulation of the EU market stimulated a second phase of airline network restructuring. European airlines concentrated their networks by adopting or intensifying wave-system structures (‘banks’ to use the US term) in their flight schedules. This paper investigates these post-deregulation temporal concentrations in European aviation networks. The development and configuration of wave-system structures at European airline hubs is analyzed as well as the resulting transfer opportunities during the 1990s. It is found that a temporal concentration trend exists among European airlines with deregulation resulting in the adoption or intensification of wave-system structures by airlines. These wave-system structures, as well as overall traffic growth, have significantly stimulated the number of indirect hub connections. Airline hubs with wave-system structures generally perform better because of the increased indirect connectivity given the number of direct connections.     

Managing New Zealand's airports in the face of commercial challenges

This paper explores commercial issues surrounding managing airports in New Zealand. Airport managers face pressures from changing airport–airline relationships, low cost airlines, proposed new airports and the growing importance of non-aeronautical revenues in achieving commercial goals. New Zealand's airports have moved from an operating environment within which all the principal airports were owned and managed by central government to one where airports are run as commercial entities under a variety of ownership structures. New Zealand has a high dependence on air transport and for its size, a very developed regional airport network.     

The effects of use agreements on airport efficiency

Bilateral contracting is integral to the working relationship between airports and airlines. In the U.S., the three common types of airport use agreements are the residual method, the compensatory method, and the hybrid method. Under a residual agreement, the financial risk of the host airport is borne by the signatory airlines, and in return, the signatory airlines pay reduced user fees. Under a compensatory agreement, however, airports bear their own financial risks in the absence of a signatory airline. A hybrid agreement combines the features of residual and compensatory agreements. For example, under a hybrid agreement, airports usually bear their own financial risks in terminal operations while the signatory airlines take over the financial risks in airfield operations. The aim of this paper is to determine whether these three types of business agreements affect airport operational efficiency. Using 2009 to 2016 yearly data of 59 U.S. hub airports, we find that airports with residual-type agreements tend to have lower operational efficiency. This implies that, although under a residual agreement, the signatory airlines pay favorable airport fees and charges, increased airport inefficiency may undercut any potential benefits of the agreement.     

Strategic alliances between airlines and airports—theoretical assessment and practical evidence

Strategic alliances are now widespread. This paper shifts the focus from alliances among airlines toward strategic alliances involving passenger airlines and airports. Following a conceptual path analyzing motives, potential benefits and problems, potential fields of cooperation are identified along with three basic classes of airline–airport alliances. Capacity-based, marketing-based, and security based cooperation models are assessed with regard to benefits for the participating airline and airport partners. This expands the existing literature that has largely neglected the airline–airport relationship and its potential for developing their respective competitive strategies. The case of the alliance between Lufthansa and Munich airport serves as an illustration.     

An Exploratory analysis of flight delay propagation in China

Delay propagation is the flight departure delay caused by the arrival delay of pre-segment flight. Chinese airline market has suffered very poor on-time performance (OTP) in recent years. It is, however, unclear whether delay propagation prevails as one major source for such problem. This study first aims to empirically quantify delay propagation in the Chinese airline market. Specifically, we shed light on heterogenous levels of delay propagations across different airports and airlines. Then, the distinct delay propagation patterns in China are also discussed and compared with other developed airline markets (e.g., the US and Europe). Our estimation is based on OTP data for over 12 million Chinese flights covering the 2015–2017 period. Specifically, it is found that 10 min arrival delay of pre-segment flight within 1 hr before the departure lead to an average of 7.49 mins delay propagation for subsequent departure flight. Arrival delay of earlier pre-segments (1–2 and 2–3 hr before the departure) leads to much less delay propagation, due to longer ground buffer. Chinese airlines arrange longer ground and flight buffer than that of the US airlines to prevent the delay propagation from accumulating along the subsequent flights in a day. Thus, unlike the US market, delay propagation is not the major reason for poor OTP in China. In addition, delay propagation is less prevailing at the Chinese hub airport. This is because China has relied on point-to-point network, which does not require sophisticated schedule coordination. And the local passengers at these Chinese hub airports have higher time value such that the Chinese airlines also try to improve OTP at these hub airports to better serve these lucrative but time-sensitive local passengers. Unlike the European LCCs, Spring Airlines, the largest low-cost carrier (LCC) in China, outperforms major full-service carriers (FSCs) in controlling delay propagation. This finding may also apply to other Northeast Asian LCCs sharing common operational characteristics as Spring Airlines. Last, we find that airlines purposely tolerate moderate departure delays of up to 15 min, which is the threshold that defines delays, no matter whether the pre-segment flight arrives late or on-time. The relevant policy and managerial implications are also discussed.     

Spatial and operational factors behind passenger yield of U.S. nonhub primary airports

Nonhub airports are an essential component in the National Plan of Integrated Airport Systems (NPIAS) of the United States in that they connect regional towns and small communities to the air transportation network. Understanding the interplay of operational and spatial factors in determining average passenger yield of nonhub airports provides airlines with valuable information for network planning and revenue management. This study examines factors contributing to the yield variation among nonhub airports in the U.S. Using ordinary least squares (OLS) based econometric models, this study captures the spatial dependence of passenger yield of nonhub airports, which tends to increase with a corresponding increase in distance to the nearest large hub airport. Nonhub airports surrounding large hub airports with higher passenger enplanements and higher average yields also have higher yields than other nonhub airports. In addition, this study finds the effect of Allegiant Airlines in lowering the average passenger yield of the nonhub airports served directly by the airline, which can be termed as ‘Allegiant Effect’. Findings of this study could provide valuable guidance for airlines to analyze network planning strategies and to identify future markets for growth and for policymakers when allocating resources to communities relying on these nonhub airports.     

Does liberalisation of air transport imply increasing competition? Lessons from the European case

The liberalisation of European airspace opened up unprecedented freedoms to Community airlines. This theoretically allows for increased competition. This article inquires into the quantification and the geography of the services offered in Europe that enjoy competition. Undoubtedly, competition appears to have increased but has certainly not become the general rule, notably because liberalisation has led to the creation of many new air routes operated by a single airline. Competition primarily benefits passengers in the large European cities, as well as those in peripheral regions that receive major tourist flows from the big cities in the northern parts of Western Europe.     

Policy issues and planning of UK regional airports

The principal motivation for this paper is to examine the policy issues for UK regional airports within the air transport system with particular reference to airport airline relationships. The geography of airline route networks is considered a key factor that determines location of the pressure for infrastructure development. Regional airports policy is considered in this context. The problems of the resultant concentration of air traffic has largely been ignored up until now and so this paper seeks highlight the issues this presents to policy makers. The paper reviews the changing regional airport ownership patterns and examines a range of implications. It then explores the policy implications for the future regulation and development of the air transport system. The authors contend that regulation and the planning system are the only two remaining policy levers for government to guide privately owned airlines, privately owned airports and commercialised airports towards national policy goals.     

Low-cost airlines,secondary airports,and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement

This paper builds a vertical differentiation model to analyse the effects of subsidies, or lower aeronautical charges, for secondary airports on competition between low cost and full scheduled carriers. The Ryanair–Charleroi Airport agreement in Europe is used as an example and as a basis for the model. The main findings are that subsidization or lower airport charges benefit consumers and negatively affect incumbent airlines. However, they may be more affected by competition than by the subsidy. An empirical analysis provides a few insights on the influence of dominating airports in Ryanair fares. We conclude that this airline sets lower fares when flights depart from or arrive at dominated airports.     

The opening of direct flights across the Taiwan Strait: the impact on the global role of Taiwan’s international airport

Scheduled direct flights between Taiwan and Mainland China were halted for six decades and restarted in December 2008. The Taiwan’s government has a policy of developing Taoyuan International Airport (TPE), the major international airport in Taiwan, as one of main hubs in East Asia, based on the airport’s access to Mainland China. To assess whether the airport is progressing toward meeting the set expectation, this study evaluates the changes in airline networks of the TPE after the opening of direct flights across the Taiwan Strait. The time-dependent earliest arrival time algorithm is applied to global flights in 2004, 2008, and 2012. Empirical evidence demonstrates that providing direct flights across the Taiwan Strait has significantly increased accessibility from TPE to airports in China, but did not improve the centrality of TPE. Additionally, the transfer dependency of TPE on other airports is increasing significantly. This result was based on two major reasons: the first involves the Chinese government’s refusal to allow Chinese citizens to use airports in Taiwan as transfer points to and from other countries and the second reflects the competitiveness among airports and airlines in the region. The key finding is that political exclusion of airline use by external governments via travel regulations adversely influences the development of an airport as a global hub.     

The European airline industry. A banker''s view

For those institutions which finance the aerospace industries, it is useful to estimate what the consequences will be of the present liberalisation process which has beset the European airline industry. Consequently ABN AMRO Bank is in the process of developing a model which analyses those factors which are crucial to the survival of an airline. These so called critical success factors appeared to be: financial strength, cost structure, domestic market, size of operations, internationalisation and political support. When we applied these factors to the European airline industry, we found that only a limited number of airlines stand a fair chance of surviving the anticipated restructuring process as an independent carrier. Several carriers will either have to merge with stronger partners or they face bankruptcy. Based on the critical success factors, the larger northern carriers enjoy the strongest positions. From amongst the southern airlines, those with a large domestic market and strong political support have a chance to survive, provided they will be able to adjust their cost structure in time.     

The pricing responses of non-bag fee airlines to the use of bag fees in the US air travel market

Using a panel data for Southwest and JetBlue in the 1st quarter of 2009, 2011, and 2013, we develop an empirical study and find evidence suggesting that the amount of bag fee charged by bag fee airlines, including those direct rivals at the route level and indirect rivals competing from adjacent airports, has a positive and significant effect on the airfare of non-bag fee airlines and such a positive association is smaller on vacation-oriented routes, but greater on routes with higher per capita income at endpoint cities. Moreover, the results are found that on the routes where Southwest is the only non-bag fee airline, the amount of bag fee charged by other airlines has a positive and significant effect on the traffic volume of Southwest. This traffic increasing effect, however, may be offset by the higher airfare of Southwest in response to other airlines’ imposition of bag fees.     

Air transport liberalisation and airport dependency: developing a composite index

Air transport liberalisation in Europe has produced some major changes to the networks operated by airlines and the services available at airports. Within this context the degree of airport dependency in terms of market, spatial and temporal concentration is important to know from an economic geography and risk management perspective. A composite index called the Airport Dependency Index (ADI) is developed to measure airport dependency based on the concept of the relative Gini coefficient. Liberalisation has had varying impacts depending on the size and type of airport and so a comparison is made of the degree of dependency at a large sample of European airports using the ADI. The ADI has the potential to provide insight on the sustainability and worthiness of financing airport projects, and on whether airports should diversify further their activities by investing in the growth and expansion of their network.