Evaluating transport user benefits and social surplus in a transport market—The case of the Norwegian ferries

The article first infers how consumer surplus in a market is linked to revenue under different assumptions about fare elasticity and when using different types of demand functions. This information is added to producer surplus in order to derive social surplus. The method, thus, produces a simple approach for authorities to assess social surplus in a market and its benefits to the users. A modified exponential demand function is applied to calculate consumer surplus and social surplus for 97 ferry services in Norway regulated by the state. The calculations are based on empirical data concerning ferry fare, revenue data at service level and reasonable assumptions about fare point elasticity for services covering different distances.In 2007, these services generated welfare for the users (consumer surplus) and the society (social surplus) amounting to about 5.8 billion NOK and 4.3 billion NOK, respectively. Consumer surplus and social surplus varied considerably amongst the services. Only 3 of the 97 services operate with positive profits and, hence, without subsidies. About 21 of the services contribute negatively to social surplus. Many of these unprofitable services are the only transport alternatives in rural areas and could be argued to continue operation according to politically decided regional measures. Implicitly, maintaining all these 21 services means that the welfare for the people in these areas is valued as up to four times greater than the welfare of the people in the rest of society.     

Homogeneous service with heterogeneous products: Relationships among airline ticket fares and purchase fences

A fare table derived from homogeneous service is essential for revenue management applications in the airline industry. Restrictions or so-called fences are usually regarded as a useful tool to differentiate homogeneous seat service. Nevertheless, the relationships among fares and fences are not yet clear. This study aims to investigate passengers’ preferences on the choice of ticket alternatives describing by fares and fences and using Taiwan domestic air travel as an example. Regarding the attributes that an airline ticket may be attached such as departure time, booking time, ticket validity, changing fee, refund and fare, stated preference questionnaires are developed with multiple hypothetical scenarios for respondents to select in the experiment. 398 valid samples are collected for the logit model analysis. With the use of mixed logit model to accommodate both passengers’ heterogeneity and also the issue of relevant alternatives in the experiment, the results show statistical significance of all applied attributes with correct signs. In addition, passengers possess different attitudes on the fence of booking time, ticket validity, changing fee, and fare. Willingness-to-pay of each fence is further calculated to ultimately generate a fare table based on the combination of fences for practice use.     

列车票额分配优化模型应用探讨

列车票额分配的优劣直接影响列车的上座率和售票收入。对售票历史数据进行分析,选择合适的数学模型对票额分配效果进行计算,可以得出比现有分配方案更为优化的分配方案。随着需求的变化,根据优化模型对票额分配方案作相应的调节,可以进一步提高上座率和增加收入。     

Fees for Reefs: Economic Instruments to Protect Mexico’s Marine Natural Areas

Stated preference methods can be used to estimate the demand function where no price variation has been observed before. This is the situation of the Mexican coral reef natural protected areas, where after the 2002 approval of a $20 pesos fee (US$1.80) the Ministry of the Environment is now considering increasing the amount of the fee, not only to raise more revenue for the park, but also to curb the number of visitors in the cases where there is excess demand. There are concerns that the very success of the reefs is bringing associated environmental damage that threatens its sustainable use. To estimate the reaction of visitors to different fee levels, we carried out a contingent valuation survey, and constructed with its results an aggregate demand for each park. This demand was then divided by seasons and nationalities, to explore the benefits and costs of differentiating fees, looking at both the revenue maximising and the welfare maximising fees. Finally we discuss how these fees would change when environmental damage functions are taken into account. The recommendation is that increasing fees up to the point where they cover both private and environmental costs would bring the highest amount of economic benefit compatible with the sustainable use of these complex and wondrous marine ecosystems.     

基于空间成本分配的北京城市轨道交通票价方案选择评价

成本的空间分配是公共交通公平的重要内容,受不同票价方案影响。为了比较不同票价方案下的空间成本分配差异,运用可达性方法,采用北京地铁及其计程票制数据在城市轨道交通站点间票价的基础上计算区域站均票价,分析不同票价方案下北京区县空间成本分布格局差异,给出区县票价方案择优结果,并对2014年北京城市轨道交通票价听证会选择的票价方案进行评价。结果显示,北京各区县并不适合一种票价方案,各区域有最佳的票价方案选择,选择一种票价方案会导致区域间不公平,为城市轨道交通票价调整政策提供一定的参考。     

Mode choice behavior analysis of air transport on the introduction of remotely piloted passenger aircraft

Remotely piloted aircraft (RPA) are expected to be applied to passenger aircraft; however there is a lack of research which analyzes choice behavior for RPA compared to conventionally piloted aircraft (CPA), in terms of socio-demographic characteristics. The purpose of this paper is to present a model for air travelers’ mode choice behaviors under the assumption that RPAs are introduced to the market. Results show that the fare of RPA should be lowered by a certain amount (i.e., discount factor of RPA) to compete with CPA, and the discount factor should be higher for older, female, and frequent travelers. The results also show that there are still concerns about RPA, and pilot on board is preferred. Through this study, it will be possible to predict the acceptance of newly introduced technology in consideration of socio-demographic characteristics of potential customers.     

Fare dispersions in airline markets: A quantitative assessment of theoretical explanations

There are substantial fare dispersions in the airline industry. There are various theoretical explanations of this, but they only provide a qualitative justification of the phenomenon. This paper simulates the quantitative outcome of three popular models to evaluate their ability to generate substantial fare dispersions. We find that, in duopoly, the maximum fare dispersion that each model can generate is quite limited; and, even for the most favourable case, it is about one-third of the observed fare variability. Moving to more competitive market structures, however, some models generate better results.     

Public transport pre-pay tickets: Understanding passenger choice for different products

Growing cashless services in the Sydney metropolitan region are motivated by the clear supply-side benefits associated with the prepayment of public transport fares. This paper examines the effect on prepay following the ‘MyZone’ fare and ticket reform in New South Wales introduced in April 2010. ‘MyZone’, introduced two new discounted and standardised prepay products, including a new, multimode ticket. Whilst these changes had implications for all public transport providers in the Sydney Metropolitan area, it had significant ramifications for the many private bus operators who, for the first time, could provide and accept tickets, which integrated their services with the state-run rail, ferry and bus network.With empirical data collected from two surveys of passengers of a private bus operator in northern Sydney this study analyses the ticket purchasing behaviour of passengers both before the fare reform, when passengers only had access to operator-specific prepay products, and post-MyZone, when the new standardised prepay products were available. The results clearly show there are significant differences in the characteristics of passengers using multi-modal versus pay-as-you-go tickets and that this difference is driven largely by age, income and whether or not the journey involved interchange. Prior to MyZone, prepay users were easily predicted and the fare and ticket reform was successful in transitioning some cash users to prepay but prepay users were no longer predictable unless separated into prepay product groups. This suggests that a policy designed to exploit the supply-side benefits associated with cashless services needs to consider that introducing only one prepay product will not address the market need of frequent users. Passengers who continued to pay cash after the fare and ticket reform showed high sensitivity to public transport cost and are those passengers with the lowest incomes. This raises policy questions of how to mitigate against the upfront costs often associated with prepay to transition less affluent, but frequent passengers, onto cashless ticketing.     

A Linear Programming approach for robust network revenue management in the airline industry

The classical revenue management problem consists of allocating a fixed network capacity to different customer classes, so as to maximize revenue. This area has been widely applied in service industries that are characterized by a fixed perishable capacity, such as airlines, cruises, hotels, etc.It is traditionally assumed that demand is uncertain, but can be characterized as a stochastic process (See Talluri and van Ryzin (2005) for a review of the revenue management models). In practice, however, airlines have limited demand information and are unable to fully characterize demand stochastic processes. Robust optimization methods have been proposed to overcome this modeling challenge. Under robust optimization framework, demand is only assumed to lie within a polyhedral uncertainty set (Lan et al. (2008); Perakis and Roels (2010)).In this paper, we consider the multi-fare, network revenue management problem for the case demand information is limited (i.e. the only information available is lower/upper bounds on demand). Under this interval uncertainty, we characterize the robust optimal booking limit policy by use of minimax regret criterion. We present an LP (Linear Programming) solvable mathematical program for the maximum regret so our model is able to solve large-scale problems for practical use. A genetic algorithm is proposed to find the booking limit control to minimize the maximum regret. We provide computational experiments and compare our methods to existing ones. The results demonstrate the effectiveness of our robust approach.     

Air cargo revenue management under buy-back policy

Few researches address the application of financial “buy-back” concept in the air cargo revenue management. This paper examines the air cargo booking and execution procedure to measure the applicability of the buy-back policy in the air cargo revenue. By applying buy-back policy during the period of order release and order execution, a revenue model is built which incorporates Hellermann's capacity option model into the Black-Scholes pricing model. The results demonstrated that buy-back policy not only answers the questions of whether to buy-back, when to buy-back and how much to buy-back, but also increases the revenues of both asset provider and intermediary. Further study is extended in the overbooking and partial buy-back scenarios. The buy-back policy showed better performance in these two scenarios compared with current approach.     

Network industries in collision: aviation infrastructure capacity,financing and the exposure to traffic declines

This paper discusses how various aviation infrastructure service providers have dealt with the fall off in airline traffic following the terrorist attacks in the US on September 11th. It shows that these organizations have relatively high fixed costs and low incremental costs for providing services. As such, small changes in traffic have large impacts on revenue because revenues are generally proportional to activity. However, because of the high component of common and fixed costs, airport and ATS provider costs do not change in proportion to activity. When traffic declines, revenue shortfalls can arise because most airport and ATC systems operate on a simple cost recovery basis. The responses to the events of September 11th have also caused substantial increases in security costs. To the extent these costs are passed forward to system users, they will increase the price of travel and impact patronage further. Airlines also have substantial fixed capacity costs. The declines in traffic are often felt as an erosion of yields and fares as carriers seek to maintain traffic loads for the capacity they are going to operate. In general, the ability to pass along cost increases from providers to airlines or from airlines to passengers depends on relative supply and demand elasticities. Because infrastructure provision is often a monopoly, and the demand for airline services is price elastic, we suggest that most of the cost increases will be borne by the airlines. We also suggest that short-haul flights will be most severely impacted because the fees and taxes are a larger proportion of the fare for these flights. We also examine the extent to which additional infrastructure costs imposed on operators may exacerbate the downturn in their traffic.     

A latent class choice based model system for railway optimal pricing and seat allocation

In this paper, discrete choice methods in the form of multinomial logit and latent class models are proposed to explain ticket purchase timing of passenger railway. The choice model and demand functions are incorporated into a revenue optimization problem which jointly considers pricing and seat allocation. The framework provides insightful policy implications in term of fare and capacity distribution derived from actual passenger behavior. It shows that accepting short-haul demand provides greater revenue than long-haul demand using the same capacity. Revenue improvement ranges from 16.24% to 24.96% in multinomial logit models and from 13.82% to 21.39% in latent class models respectively.     

Battery electric vehicles in cities: Measurement of some impacts on traffic and government revenue recovery

We are told that electric vehicles, cars in particular, will be good for the environment. But what exactly might this mean? It is true that end use emissions will be significantly reduced when we move from fossil fuels to green energy sources? Assuming that the demand for such cars, including battery electric vehicles (BEVs) in particular will grow, we can expect a significant number of such vehicles manufactured in future years. Given the potentially relatively lower cost (fewer moving parts) compared to internal combustion engine vehicles as well as the significantly lower usage costs per kilometre, we would expect a level of uptake that could impact on the performance of the road network (perhaps increased congestion and crash risk) but also a concomitant reduced use of public transport and fuel excise loss. In this paper, we apply the MetroScan modelling system in the Greater Sydney Metropolitan Area (GSMA) over the period 2021–2056 to identify the likely impact that the growth in BEV ownership and use will have on vehicle kilometres, modal shares, government revenues, levels of CO₂ emissions and other impacts. Moreover, we investigate the introduction of a BEV usage charge proposed in Australia to see what it might do to these key performance indicators and whether it can offset the adverse effects during BEV uptake such as government fuel excise revenue loss and increased congestion.     

The privatisation of Australia’s airports

When the Federal Airports Corporation (FAC) was formed in 1988, administration of Australia’s major airports passed from a Government department to a corporatised entity. The FAC improved the performance of the airports sector and it broadened the revenue base through commercial and property development. By 1994, however, policy thinking shifted in favour of privatisation. So far, the Government has sold 17 of the FAC’s 22 airports and it has received US$2.6 billion (1998/99 values). Four of the remaining airports are in the Sydney region where there are on-going debates about an appropriate site for a second major airport.The paper describes the sales processes and presents details about the new owners, the commitments they have entered into, and the regulatory system that has been established for the post-privatisation era. Price-capping arrangements have been put into place for the major airports, but Australia also introduced legislation to ensure there is competitive access to essential infrastructure. It is too early to assess the performance of the new owners and to see how the interaction between access regulation and price capping is managed, but this paper documents the pre-privatisation situation to assist future researchers.     

How do carriers price connecting flights? Evidence from intercontinental flights from Europe

In civil aviation, hub-and-spoke (HS) networks are used by all large carriers. The importance of this system implies that many travelers use connecting flights. Nevertheless, only scarce knowledge is available on price formation of these trips. In this paper, we focus on the fares of connecting intercontinental flights, with one stop and at least one competing direct flight. We develop a simple model of a HS network, with imperfect substitutability between direct and indirect flights and Cournot competition on every route in the network. We test the model empirically, using reported fares for flights from seven European origins, including the five major airports in Europe, to five non-European destinations. We find that the fare of a connecting flight can be expressed as the weighted average of the fare of its direct competitor, the travel times of both flights its costs and the monetary value of the utility attached to the trip. The weight of the direct fare decreases as product diversity increases.     

Examining circuity of urban transit networks from an equity perspective

Circuity of transit networks, defined as the ratio of network to Euclidean distance traveled from origin to destination stop, has been known to influence travel behavior. In addition to the longer time spent in travel, for networks where fare is based on distance traveled, higher circuity also means higher fare for the same Euclidean distance. This makes circuity relevant from an equity perspective. Using a case study of the urban transit network of Amsterdam in the Netherlands, this study explores the role of transit circuity on the disparity in distance traveled by travelers' income profile and its implications on travel times and costs for networks with distance-based fares. The analysis is based on travel patterns from smart card data for bus, tram, and metro modes, combined with neighborhood level income data. Results reveal that in Amsterdam, the higher the share of high income people living in proximity to a transit stop, the lower the circuity of journeys from the stop, when controlled for the Euclidean distance covered and spatial auto-correlation. The uneven distribution of circuity exacerbates the disparity in distance traveled, and hence fare paid between the income groups. However, the travel time per Euclidean distance favors the low income group, possibly due to the circuitous routes serving these areas being compensated by higher travel speeds. This study highlights the role of transit network design in determining its equity outcomes and emphasizes the importance of considering equity during route and fare planning. The process followed can be adapted to examine equity for other urban networks.     

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.     

Changes in airport operating procedures and implications for airport strategies post-COVID-19

Covid-19 is demanding a lot of changes in the realm of our daily lives. The aviation industry is also facing unprecedented changes in the management environment. Financial tensions across the sector are rising. This study suggests that the airport strategy's direction focusing on commercial revenue management. After Covid-19, safety and hygiene will be the top priority. As a result, changes in airport operating procedures are inevitable. The most noticeable difference will be the strengthening of the verification process for passengers' health conditions. Dwell time increase can be the by-products. This study identifies a dwell time increase has a more significant impact on increasing the existing purchasers' spending than creating new buyers. Airport operators can introduce a service differentiation perspective, such as a dedicated service, to utilize the current buyers' dwell time more faithfully. Also, the rise of online channels requires airport operators to change sales strategies, reinforcing emotional promotion to stimulate impulse buyers' willingness-to-buy. Before Covid-19, there was little effort to reconcile operation policies and commercial revenue despite the growing importance of revenue management. However, now it is time to change. Pre-Covid-19, passengers were advised of using off-airport processes, such as online check-in and mobile boarding passes. Now, getting passengers to the airport quickly and securing their dwell time can be financially more beneficial. It is necessary to incorporate the commercial revenue perspective into operation policies post-Covid-19 actively. Our finding indicates that even a passenger with solid purchasing power may lose the purchasing intention when assigned to an unfavorable gate or terminal. Airport operators need a better understanding of passenger and flight characteristics when determining operation policy, such as gate allocation or membership services.     

我国居民交通支出承受能力分析及预测

居民对交通票价承受力既是制定旅客运输发展战略的依据之一，也是铁路确定高铁票价的重要参考因素之一。根据近些年我国居民消费支出发展的轨迹，对我国居民交通支出的承受能力进行分析，认为随着我国经济的不断发展，我国居民对交通出行的承受能力逐年增强，居民对目前高铁的票价是能够接受的；并根据我国国民经济发展规划，对未来我国城镇居民的交通支付能力进行分析、预测，提出2020年我国城镇居民交通承受能力水平，为我国高铁的发展建设及营销战略的制定提供基础资料支撑。     

The importance of concession revenues in the privatization of airports

We investigate the tradeoff between the airport’s concession and aeronautical revenues—two complementary services. Increasing the frequency of flights may result with congestion which could stimulate demand for concessions, but may also harm the demand for flights. When passengers have a low valuation for the concession good, the opportunity for concession revenue is small and the airport focuses its revenue on the aeronautical (i.e., landing) fees. With a sufficiently large valuation for concession goods, the airport may lower the aeronautical charges to stimulate greater flight frequency in order to lower airfares thereby attracting more passengers ultimately to increase concessions revenues. It is in the latter case where we observe minimal loss of aeronautical welfare when airports are privatized. Thus, our research could help guide decision makers in the airport privatization process. Namely, we find that privatization is not recommended unless the potential for concession revenues is sufficiently large.