The impact of Air Service Agreement liberalisation: The case of Nigeria

The positive impact of air transport liberalisation as suggested by economic theories and empirical studies has inspired many developing countries like Nigeria to liberalise some of its Air Service Agreements (ASAs). This paper seeks to examine the extent to which international air service liberalisation has impacted upon Nigeria ten years after it was introduced. The research developed a cross-sectional model with passenger traffic as the dependent variable, while macroeconomic factors (trade and GDP), historical links, distance and ASAs (a proxy for liberalisation) served as independent or predictor variables. The analysis revealed a set of ASA stages in the country's policy-making process (restricted Bilateral Air Service Agreement, Open Skies Agreement and Yamoussoukro Declaration). Further analysis showed that the predictor variables were all significant in explaining passenger demand. The model demonstrated that the liberalisation of market access to the Open Skies Agreement level could stimulate traffic growth by at least 65 percent. The findings can assist in guiding policy and industry stakeholders in future decisions relating to liberalisation and ASAs.     

International trade in air transport services: Penetration of foreign airlines into Japan under the bilateral aviation policies of the US and Japan

This study examines the impact of the bilateral aviation framework on passenger air transport service imports focusing on the US and Japan. The US promoted liberalization under its Open Skies framework from the 1980s, while Japan supported phased-in liberalization under the traditional bilateral air services framework. The numbers of US and Japanese citizens flying on foreign carriers has increased. The penetration of foreign imported air services into Japan has been significant. Regression analysis shows that Open Skies liberalization may contribute to the increased US import. Japan's relative market openness, however, makes it difficult to measure the effects of liberalization under a bilateral framework and shows the complex dynamics that may accompany Open Skies policies.     

International air transportation and economic development

Legislation in 1977 and 1978 effectively deregulated the US domestic air cargo and air passenger transportation industries. International air transportation, largely as the result of the ‘Open Skies’ initiative from 1979 has also gradually been liberalized but progress has been geographically and temporally uneven. This study is concerned with extending the Open Skies concept and in accessing the benefits to the US economy of removing the remaining impediments to the provision of free market services involving, in particular, the full transatlantic market. It initially reviews some of the previous work that has looked at links between industrial location and the quality of international air transportation. It develops a modeling framework to examine the implications of further liberalization on the economies of US regions that currently have limited international services. The work involves a macro-analysis of the impact of European international services for 41 Metropolitan Standard Areas.     

The good,the bad,and the ugly: 30 years of US airline deregulation

The US airline industry was deregulated in 1978 and has undergone significant changes in industry structure, profitability, employment, passenger volume, and patterns of service and fares, among other characteristics. This paper sets out to make three contributions to the literature as related to the story of airline deregulation. First, discussion of economic theory will provide the context for an updated overview of the positive, negative, and really negative results of US airline deregulation, summarized in the form of “the good”, “the bad”, and “the ugly”. Second, this paper provides a periodization of the 30-year history of US airline deregulation that is important in understanding the cycles of change as reflected in the industry’s financial performance and other relevant data. Third, this paper contributes to the renewed debate about the efficacy of deregulation and liberalization policies, particularly at a time when the global financial crisis has cast a harsh spotlight on the (un)desirability of these policies. Some of the good results during the 30 years of airline deregulation, from the industry and consumer perspective, include higher passenger volumes, more service to the most popular destinations, and lower fares on average. Bad results include financial and employment instability, diminution in the quality of airline service overall, and fewer flights and higher fares to smaller places. The recent 2000–2005 period has been particularly ugly, as the airline industry has lost over $30 billion, and several high-profile carriers, such as United, Delta, Northwest, and US Airways, were forced into bankruptcy.     

The impact of COVID-19 on airline passenger travel behavior: An exploratory analysis on the Chinese aviation market

China was the first airline market in the world to be hit hard by the COVID-19 pandemic. It has been gradually recovering as the pandemic is largely contained domestically. However, with the global pandemic spread and great uncertainty, there has been a remarkable change in airline passengers’ travel behavior. This paper collected air passenger-level data from TravelSky in the Chinese market. In addition to the analyses on aggregate passenger flow patterns, this paper explores changes in airline passenger travel behavior, such as ticket booking time, age distribution of passengers, refunds and ticket changes, and passenger arrival time at airports. This is one of the first studies to focus on micro-level changes in airline passenger travel behavior by using objective passenger-level data. The pandemic-induced psychological changes in air travelers are explored, providing useful managerial and policymaking implications for the normalization of the pandemic and the recovery of the airline market in the post-pandemic era.     

Aircraft and passenger recovery during an aircraft’s unexpected unavailability

Airlines design their initial schedules under the assumption that all resources will be available on time and flights will operate as planned. However, some disruptions occur due to mechanical failures and unexpected delays of maintenance, making the aircraft unavailable for a certain period of time. These deviations from the initial plan result in high operational costs in addition to the serious inconveniences experienced by passengers. In order to handle aircraft and passenger recovery problems simultaneously, we work on integrated networks at which aircraft routings and passenger itineraries are superimposed. Consequently, we could calculate the actual profit and cancellation cost by evaluating each passenger itinerary while considering the seat capacity limitations. In our computational results, we use a daily schedule of a major U.S. airline and clearly demonstrate that there is an optimal trade-off between operating and passenger-related costs.     

Aviation and the environment in the context of the EU–US Open Skies agreement

We examine the impacts of the EU–US Open Skies agreement on the environment on emissions from the aviation sector. We use the Hamburg Tourism Model of domestic and international tourist numbers and flows, to estimate these impacts. The Open Aviation Area will result in increased competition between carriers and falls in the cost of transatlantic flights. This will not only have implications for the size and structure of the industry but also for climate policy. The paper assesses what effects the expected increases in passenger numbers will have on CO₂ emissions and tests whether this increase in travel will result in a corresponding rise in emissions. Simulations show that passenger numbers arriving from the US to the EU will increase by between 1% and 14% depending on the magnitude of the price reductions because of substitution between destinations, the percentage increase in global emissions is much smaller (max. 1%) than the increase in cross-Atlantic traffic.     

Investigating the effects of economies of scope on firms’ pricing behavior: Empirical evidence from the US domestic airline industry

This study investigates to what extent cross-product (belly cargo) output affects (passenger ticket) prices in the US domestic airline industry. The empirical analysis indicates that greater cargo volumes generally result in lower air fares, presumably as a result of the airlines’ realization of economies of scope. This magnitude of this price effect, however, depends on certain firm and route market characteristics. The findings of this study add to extant research on economies of scope, multi-product yield management and airline pricing and provide important insights for policy makers and airline managers alike.     

The impact of low cost airline entry on competition, network expansion, and stock valuations

We conduct event studies and statistical analysis to explore the impact of low cost carriers’ entry on legacy airline stock prices. Oligopoly structures, entry barriers, and high fixed costs make the airline industry highly susceptible to competitive and network expansion impact of low cost airlines’ entry. Positive stock returns are observed, which we interpret as the spillover effects of network expansion. Thus, rising passenger traffic and improved connectivity increase the revenues of legacy airlines to sufficiently offset the low cost carriers’ competitive threats.     

The effects of open skies agreements on transatlantic air service levels

This paper examines the effects of Open Skies agreements on service levels in transatlantic aviation markets. Our route analysis reveals that Open Skies agreements between European countries and the US have resulted in both increases and decreases in service levels. Of the 22 European countries with US Open Skies agreements in place by 2007, only seven demonstrated increases in service levels while six showed reductions. Five countries saw no significant change and the remaining four have yet to receive direct transatlantic service, suggesting that liberalization alone does not lead to service level increases.     

The impact of flight delays on passenger demand and societal welfare

US airline passengers increasingly have access to flight delay information from online sources. As a result, air passenger travel decisions can be expected to be influenced by delay information. In addition, delays affect airline operations, resulting in increased block times on routes and, in general, higher carrier costs and airfares. This paper examines the impact of flight delays on both passenger demand and airfares. Delays are calculated against scheduled block times as well as against more idealized feasible flight times. Based on econometric estimations, welfare impacts of flight delays are calculated. We find that flight delays on a route reduce passenger demand and raise airfares, producing significant decreases in both consumer and producer welfare. Since producer welfare effects are estimated to be three times as large as consumer welfare effects, we conclude that from an economic efficiency rationale, airlines should be required to pay for the bulk of flight delay remediation efforts.     

The implications of environmental costs on air passenger demand for different airline business models

Various environmental measures, including both regulations and fiscal instruments, have been used at airports globally to reduce the impacts of aircraft noise as well as aircraft engine emissions. Internationally, it is recognized that the costs of environmental and social externalities of air transport must be internalized and paid for by the aviation industry and its users. The use of noise related charges or taxes, which theoretically should be based on their respective social costs, has been proved to be effective at some European airports. This research aims to investigate the impacts of environmental costs, through environmental charges, on air passenger demand for different airline business models. The paper presents the mathematical models measuring the social costs of aircraft noise and engine emissions as a basis for setting up environmental charges. Six intra-European short-haul routes in two city pairs, namely London–Amsterdam and London–Paris, are selected for the empirical analysis. The environmental charges are then hypothetically applied to airlines with two different business models, full service carriers (British Airways and Air France-KLM) and low cost airlines (EasyJet). The results show that the potential percentages of demand reduction for both leisure and business passengers would be higher for Easyjet's markets, although with less environmental cost per passenger.     

The future of airline distribution

This paper provides an overview of the changes taking place in airline distribution and evaluates the impact of these changes on the key stakeholders; the airlines, travel agents, global distribution systems companies and corporate travellers. Conclusions as to the future of airline distribution are drawn. It is likely that global distribution systems deregulation will lead to the fragmentation of airline inventories across different distribution channels. Airlines will seek to increase the proportion of sales they make directly on their own website, thereby reducing their costs. Travel management companies will need to demonstrate their value to corporate clients clearly. Corporate clients are most concerned about ensuring access to the widest possible range of airline products and tariffs, at the same time as distribution costs are removed from the value chain.     

The impact of US–EU “Open Skies” agreement on airline market structures and airline networks

The gradual liberalization of international air transport has largely benefited the traveling public. Progress since the development of concepts such as “Open Skies” in the late 1970s as an alternative to the restrictive bilateral air service agreements that had effectively controlled most international air transport since the mid-1940s has been uneven and spasmodic. The recent move to open the North Atlantic more fully to competition has proved a particularly challenging task, and the agreement between the US and the European Union is still both partial and conditional. This paper offers an overview of the economics of the situation and provides insights into the reasons why it has developed in the way it has, the outcomes that we may expect from it, and some consideration of the wider, non-commercial, impacts that it may have.     

Airline in-flight entertainment: the passengers’ perspective

Following relaxation of economic regulation in many aviation markets, the competition amongst airlines has intensified in recent years. This has resulted in improvements in airline products, especially in the in-flight services. One of the areas on which airlines have focused their attention is the provision of personal in-flight entertainment (IFE). In 1998, airlines spent $1.8 billion on IFE. However, the industry is faced with a number of questions in relation to such levels of investment: Are the investments justified? Does IFE influence passengers’ choice of airline? Does IFE have a revenue-generating potential? What does the future hold as far as the IFE services are concerned? This paper addresses these questions based on a passengers survey and literature review. The results indicate that while IFE is not amongst the primary factors affecting passengers’ choice, it contributes greatly to passengers’ satisfaction with airline services. While provision of IFE can currently act as a differentiating factor, in the future it will become part of passengers’ expectations. It has also become apparent that, while IFE has the potential to generate some revenue, it would not be enough to cover the total costs associated with the installation and running of IFE systems. The impact of IFE would be felt, indirectly, through increase in passenger loyalty which should have a positive impact on airline revenues.     

Autos,transit and bicycles: Comparing the costs in large Chinese cities

This study compares the full costs of seven passenger modes in the large Chinese cities facing the difficult yet crucial choice among alternative passenger transportation systems. The seven modes are evaluated at varied traffic volumes in hypothetical radial and circumferential commuting corridors. Using detailed estimates of private and social costs, the full cost of each mode is minimized by optimizing infrastructure investment and operation plans. On all corridors and across different scenarios, commuting by one or more forms of bus transit or bicycle costs less than automobile or rail. Nonetheless, in circumferential corridors, rail can be almost as cost-effective as bus under certain conditions, and bicycle can be less cost-effective than bus in some cases. Unlike results from similar studies conducted in the US, automobile commuting does not cost less than bus transportation at low traffic volumes.     

EU/US Open Skies – Competition and change in the world aviation market: The implications for the Irish aviation market

The EU/US Open Skies agreement became operational on March 29th, 2008. The 23% increase in flights between Ireland and the US in 2008 under the agreement is the highest expected increase under the agreement and is almost three times greater than the expected overall increase in air travel between the EU and the US. Open Skies increases the number of routes between Ireland and the US by 3 to 10 and allows airlines to fly directly to and from Dublin without a compulsory stop at Shannon. There are very strong economic, investment, visitor, political and ethnic ties between Ireland and the US and air travel between the countries per head of population in Ireland is 5.6 times greater than the EU average. The benefits from Open Skies include lower fares, new routes and direct services reducing the need to backtrack over European hubs, in addition to the abolition of the requirement to stopover at Shannon.     

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.     

The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers

This paper examines the recent developments of China’s aviation polices focusing on airline consolidation, the opening up of the domestic aviation market, and the adoption of more liberal international aviation policy. It then goes onto assess the impacts of the above policies on the industry structure, the performance of major airlines, and the competitiveness of Chinese airlines in international markets. The study shows that the industry became more competitive following the opening up of the domestic aviation market. Although major airlines saw an increase in passenger volume and an improvement in load factors, the falling yield and rising costs make them difficult to grow profitably. Moreover, Chinese airlines largely failed to capitalise on building an international network and the majors were weak in international competition. Strategic use of aviation policy to build a strong and profitable airline industry is still a formidable task lying ahead for policymakers.     

Between external forces and internal factors: The geography of domestic airline services in South Africa

This paper investigates the changes and current patterns of domestic passenger airline networks in South Africa, considering routes operated and volumes of seats supplied by carriers. This market was liberalised in 1991 and the new market-oriented policy was not challenged by the post-apartheid regime. Flag-carrier South African Airways (SAA) has lost its virtual monopoly, and thus significant volumes and market share, although its decrease is smaller if one considers its regional affiliates and subsidiary. Conversely, low-cost airlines have literally boomed, while British Airways has penetrated the market through a franchise agreement with Comair. Route networks by airline show various patterns. The low-cost carriers tend to concentrate on South Africa's Golden Triangle, while SAA regional affiliates mostly serve thin routes without competitors. Furthermore, the rise of low-cost airlines has led to the utilisation of a secondary airport in Johannesburg, the only African city with a multiple-airport system. Finally, our results are interpreted in light of South Africa's geography, intermodal options and social-political issues.