The effects of taxicab deregulation in rural areas of Sweden

In 1990, the taxicab industry in Sweden was deregulated. By eliminating entry and price controls, it was expected that prices would decrease and efficiency/productivity would increase. This paper examines the effects of deregulation in rural areas. We assume that the geographic setting, with respect to population composition, population density, economic life, infrastructure, transport service provision, etc., provides different conditions for taxicab services as well as different demands for taxicab services. Taxi logs and taxi meters provided data for this study. The results indicate that although not all expectations have been fulfilled, some positive effects concerning competition and productivity are noted.     

Can low cost carriers deter or accommodate entry?

This paper analyses entry deterrence and accommodation by low cost carriers (LCCs) with two games. In the first game two LCCs compete in a horizontal differentiation setting. Results show that the entrant may drive away the incumbent from its original location under certain conditions. In the second game the incumbent is a LCC and the entrant a full service carrier, with vertical differentiation. The incumbent tries to deter or accommodate entry by product proliferation. We find out that the incumbent will only deter entry if it can surpass the entrant’s quality, and that product proliferation is not an accommodating strategy.     

Taxicab licence value and market regulation

In this article, we model the value of a taxicab licence as the present value of profits generated by quotas on the number of licences set by the Regulator. We propose a calibrated model to simulate the impact of different public policies. We then use French data to estimate this model and show that the value of the licence decreases with the number of licences, but increases with the size and wealth of the city population. Applying this model, we deduce an indirect estimation of the elasticity of demand with respect to availability of the service (number of taxicabs) of 0.78. Hence a 75% increase in the number of taxicabs could occur in France before eliminating the value of the licence.     

Measuring the economic effects of bilateral liberalization air transport

This paper develops a model that measures the equilibrium changes and welfare consequences of liberalizing the fare, entry and service levels of a bilateral air transport agreement. The model also provides measures of the distribution of gains and losses across the consumers and airlines of each country involved in the bilateral as well as those of any third foreign country that may be affected through traffic diversion as a result of changes in the bilateral. In our model, service quality aspects are treated in the framework of hedonic price theory by specifying the quality-adjusted price (quantity) as a multiplication of the observed price (quantity) by the reciprocal quality index function (the quality index function). The model is illustrated using the Canada–Japan bilateral to assess alternative combinations of changes to fare, frequency and entry restrictions. We report the outcomes for market share, airline profits, fares and consumer welfare.     

Low-cost carrier entry at small European airports: Low-cost carrier effects on network connectivity and self-transfer potential

Airport connectivity can improve the competitiveness of regions by attracting tourism and inward investment. Regions traditionally accessed international destinations via connecting flights to national gateway airports usually operated by full service network carriers (FSNC). However, the entry of low-cost carriers (LCC) in these markets has led to changes in incumbent FSNC service provision. We analyse how intra-European connectivity has changed at small airports between 2002 and 2012 and how LCC entry has affected the quality of day-return schedules in these markets. Results show that offline LCC connectivity is greater than that scheduled by FSNCs. Furthermore, LCC entry had a negative effect on the quality of the connectivity offered by FSNCs. Interestingly, we also found that day-return itineraries become more difficult for passengers in markets where the LCC is the sole operator. Regional policy-makers may need to more carefully consider the connectivity implications in the design of LCC start-up incentive schemes.     

The emergence and effects of the ultra-low cost carrier (ULCC) business model in the U.S. airline industry

The effects of “low cost carriers” (LCCs) such as Southwest Airlines and JetBlue Airways on the competitive landscape of the U.S. airline industry have been thoroughly documented in the academic literature and the popular press. However, the more recent emergence of another distinct airline business model—the “ultra low cost carrier” (ULCC)—has received considerably less attention. By focusing on cost efficiencies and unbundled service offerings, the ULCCs have been able to undercut the fares of both traditional network and low-cost carriers in the markets they serve.In this paper, we conduct an analysis of ULCCs in the U.S. aviation industry and demonstrate how these carriers' business models, costs, and effects on air transportation markets differ from those of the traditional LCCs. We first describe the factors that have enabled ULCCs to achieve a cost advantage over traditional LCCs and network legacy carriers. Then, using econometric models, we examine the effects of ULCC and LCC presence, entry, and exit on base airfares in 3,004 U.S. air transportation markets from 2010 to 2015. We find that in 2015, ULCC presence in a market was associated with market base fares 21% lower than average, as compared to an 8% average reduction for LCC presence. We also find that while ULCC and LCC entry both result in a 14% average reduction in fares one year after entry, ULCCs are three times as likely to abandon a market within two years of entry than are the LCCs. The results suggest that the ULCCs represent a distinct business model from traditional LCCs and that as the ULCCs grow, they will continue to play a unique and increasingly important role in the U.S. airline industry.     

Analyzing airlines market service using panel data

Quarterly panel data covering the largest 10,000 city-pairs in the domestic US from 1998 are used to investigate airlines market entry and exit decisions. Several models are estimated looking at changes in the number of carriers serving in a market. The influence of a number of markets characteristics is examined, including number of passengers, average fare, average yield, service concentration, great circle distance, and seasonality. The results suggest that airlines are more likely to enter a market when market concentration is high and there are high average fares. Also airlines tend to enter new markets in the second quarter, then in the fourth quarter, and then in the third quarter of the year.     

What determines the effectiveness of barriers to entry in liberalised airline markets?

Hypotheses are derived concerning the effectiveness of entry barriers in deterring route entry in liberalised airline markets. Survey data are used to reflect the perception of airline managers in Australia/New Zealand, Canada, the European Union (EU) and the US. We find that industry conditions, and an entrant's objectives, characteristics and strategies influence the effectiveness of entry conditions in hindering entry. The results suggest that effectiveness is a function of the perceived height of the barrier, the perceived ability of the entrant to overcome it, and the reward expected from entry.     

Mergers and service quality in the airline industry: A silver lining for air travelers?

We examine the relationship between mergers in the US domestic market and service quality, as measured through late flights, mishandled bags, involuntary boarding denials and flight cancellations. We find that in the immediate years following a merger, service quality generally deteriorates, and that the drop in service is due simultaneously to the merger and the increased concentration of the market. Thus, recent mergers in the US, including Delta and Northwest, United and Continental, Southwest and AirTran, have likely resulted in increased market concentration and decreased service levels. From a public policy perspective, our results point to the importance of regulators monitoring airline actions, such as mergers and acquisitions, that serve to increase the concentration of markets, and may also result in decreased service quality.     

Fare impacts of Southwest Airlines: A comparison of nonstop and connecting flights

This paper examines the effects of Southwest Airlines' entry on its rivals' pricing, with a focus on comparing nonstop and connecting flights. The results produce two important findings. First, Southwest's nonstop entry depressed its rivals' nonstop airfares and connecting airfares. Second, Southwest's connecting entry depressed its rivals' connecting airfares, but did not depress their nonstop airfares. Considering nonstop and connecting services as differentiated products which differ in quality, the findings suggest that firms have quite different fare strategies upon the entry of different quality products.     

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.     

Dynamic effect of inter-firm rivalry on airfares: Case of Japan's full-service and new air carriers

This paper analyzes the dynamic changes in carriers' airfares and outputs and computes the change in the consumers' surplus year by year after new Japanese carriers entered thriving routes and started to compete with Japanese full-service airlines. Using unbalanced panel data from 222 routes and carrier specific sample observations, it finds that new carriers discounted airfares significantly as soon as they entered new markets, but two early carriers, Skymark Airlines and AIRDO, which had entered with very low airfares, raised their prices year by year. On the other hand, both All Nippon Airways and Japan Airlines responded to the new entrants and lowered their airfares to a much lesser extent than the new entrants did, and their airfare levels remained almost unchanged for at least four years after the first entry. The consumers' surplus increased significantly in the first year of each new entry but gradually decreased as the new entrants raised their airfares.     

The choice of air carrier, flight, and fare class

This paper reports the development and interpretation of air traveler choice models to gain insights into the tradeoffs air travelers make when they choose among different carriers, flights, and fare classes. Such insights can be used to support carrier decisions on flight scheduling, pricing, seat allocation, and ticket restrictions. This paper develops a conceptual framework and applies it to the choice of carrier, flight, and fare class as a basis for analyzing air travel demand in a competitive market. Model estimation results are used to quantify the importance of carrier preferences, market presence, quality of service, frequent flyer program membership, schedule convenience, and fares on carrier travel demand. The empirical results provide measures of the premium that business and leisure travelers are willing to pay to avoid schedule delays, to choose a carrier in which frequent-flyer program they participate, and to obtain the amenities and freedom from travel restrictions associated with higher fare classes.     

European intermodal freight transport network: Market structure analysis

The analysis of market structure and concentration measures for the Intermodal Freight Transport (IFT) market is important to avoid market failure and to find the areas for policy making to promote IFT market share. This analysis can be performed for separate segments, for example, the market for transshipment service or the market for main-haulage service. However, due to the multistage characteristic of IFT service, the segmental analysis gives an incomplete view of the IFT market at the network level. In a previous paper (Saeedi et al., 2017), we present the Intermodal Freight Transport Market Structure (IFTMS) model to conduct a network-based study of the IFTMS in which distinctive actors (i.e., pre/post haulage operators, terminals, rail/barge operators, transport chains, and corridors) are competing at different levels inside distinctive markets to deliver an integrated IFT service. There are two main challenges in the application of IFTMS model in real cases, for example, the European IFT network. First, the definition of the geographical and spatial border of the transshipment market areas is needed to determine which actors are potentially competing for a specific service demand. The second challenge is the lack of disaggregated data and the consistency of existing data in nodes (i.e., the transshipment areas) and links (i.e., the rail and barge operators). To cope with these challenges, we develop a four-step methodology in which a model-based approach is used to define the geographic boundaries of the transshipment submarkets and provide detailed and consistent data for market analysis. We also apply the IFTMS model to study the market structure of European intermodal network. Our analysis shows that the majority of transshipment markets as well as main-haulage markets are highly concentrated markets. The corridor markets – which include the IFT chains – are unconcentrated markets. Furthermore, the majority of corridors in the European Union are inside highly concentrated origin-destination markets.     

An analysis of the determinants of air traffic volume for European metropolitan areas

This paper examines the determinants of air traffic volume in the major European urban regions, highlighting those that depend on the metropolitan features of cities. We used homogeneous urban and airline data that make international comparisons possible. We found that GDP, the level of economic decision-power, tourism functions, and the distance from a major air market account for more than two-thirds of the variation in air service. This seems to indicate that air service remains profoundly rooted in the metropolitan features of urban regions (notably size and decision-power), even if low-cost airlines are probably less linked to the latter because they partly focus on niche markets and regional airports. Much of the remainder is probably attributable to the specificities of the urban economy, to actors’ strategies and to competition from high-speed trains.     

Impacts of LCC growth on domestic traffic and fares at largest US airports

This paper examines the evolution of domestic origin-destination air traffic and fares at the top 200 airports in the US between 1990 and 2008, with a focus on the impacts of low-cost carrier entry and growth. By 2008, 95 of the airports had an aggregate low-cost carrier market share of domestic traffic greater than 20%, up from 27 airports in 1990. Their entry or substantial growth at US airports has had significant impacts on lowering average fares and stimulating passenger volumes. This market stimulation effect has, however, diminished in recent years, as the difference in average fares between carrier types has narrowed and as the number of additional US domestic origin-destination markets able to support their entry has dwindled.     

Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns

This paper investigates the effects of the airlines-within-airlines strategy adopted by Qantas airline group, which simultaneously runs a full-service airline (Qantas Airways) and a low-cost carrier (Jetstar Airways). Our empirical investigation of airline pricing and route entry patterns in the Australian domestic market suggests that Jetstar has been used as a fighting brand against rival low cost carriers. Such a strategy increases group airlines’ prices at the expenses of rival airlines. There is preliminary evidence that pricing benefits to Qantas Group come from increased market power as well as service quality improvements.     

The Northeast Asian air transport network: is there a possibility of creating Open Skies in the region?

Unlike in the US and the European Union aviation markets, the Northeast Asian markets are still very fragmented. As a result, the passenger and air freight collection/distribution systems in the region are very inefficiently organized. The primary reason for the inefficient and inconvenient air carrier networks in the region is the restrictive bilateral air services agreements between Asian countries. This paper documents the nature and extent of the restrictive bilateral agreements among China, Japan and Korea, evaluates several bilateral or trilateral approaches for liberalizing the regional air transport markets, and makes a proposal which would increase substantially the probability of achieving an Open Skies market in the region. In particular, the current approach to liberalize the bilateral air services agreements among China, Korea and Japan has limitations even in the medium term because of China's and, to a less extent, Japan's reluctance to remove price and capacity restrictions. Therefore, as an institutional solution we propose to create bi-national (for bilateral negotiations) or tri-national (for trilateral negotiations) ‘Trade and Transport Facilitation Committees’, that can pursue a practical avenue to tie air transport negotiations with those of other goods and services trade.     

Linkages between customer service, customer satisfaction and performance in the airline industry: Investigation of non-linearities and moderating effects

The paper investigates the linkages between customer service, customer satisfaction, and firm performance in the US airline industry. In particular, the moderating effects of market concentration and firm dominance on the service-satisfaction-performance relationship are examined. Our major finding is that market concentration dampens the relationship between customer satisfaction and airline profitability. Although the same moderating relationship was not found for market power, these results, combined, indicate that airlines can increase profits in concentrated markets without providing for the same, concomitant increases in customer satisfaction as airlines operating in more competitive markets. From a public policy perspective, our results point to the importance of regulators monitoring airline actions, such as mergers and alliances, that serve to increase the concentration of markets, but may result in lower levels of customer satisfaction.     

Aviation liberalisation: What headwinds do we still face?

This paper, based on a published report by the International Transport Forum at the Organisation for Economic Co-operation and Development (ITF), examines the issues, or ‘headwinds’, preventing aviation from becoming a truly market-based sector. It paints a brief portrait of the history of regulation and deregulation in aviation and the role of competition policy in a liberalised aviation marketplace. It then focuses on the level playing field, which is often used to argue for protectionist policies and ownership restrictions on air carriers. The paper suggests that some of the controls on market access in place today may do more harm to consumers and the broader economy than good.