Gravity models for airline passenger volume estimation

This paper presents two gravity models for the estimation of air passenger volume between city-pairs. The models include variables describing the general economic activity and geographical characteristics of city-pairs instead of variables describing air service characteristics. Thus, both models can be applied to city-pairs where currently no air service is established, historical data is not available, or for which factors describing the current service level of air transportation are not accessible or accurately predictable. One model is limited to city-pairs with airports not subject to competition from airports in the vicinity, while the other model includes all city-pairs. Booking data of flights between Germany and 28 European countries is used for calibration. Both models show a good fit to the observed data and are statistically tested and validated.     

Price elasticities of demand for passenger air travel: a meta-analysis

The demand for air transport is largely determined by the spending capacity of customers. This paper aims to offer more insight into the determinants of price elasticities in the aviation sector. It seeks to identify both common and contrasting factors that influence the price elasticities, on the basis of a comparative analysis among a large number of empirical studies in this field. By means of meta-analytical methods, the relative importance of several driving forces such as distance, type of ticket and the nature of study is investigated.     

A passenger demand model for air transportation in a hub-and-spoke network

This paper develops an air passenger model that deals with city-pair demand generation and demand assignment in a single framework. Using publicly available and regularly collected panel data, the model captures both time series and cross-sectional variation of air travel demand. The empirical analysis finds that pattern of correlations among alternatives can be described by a three-level nested logit model. Fare, frequency, flight time, direct routing, on-time performance, income, and market distance have significantly effects on air demand. Correcting for the problem of endogenous air fares using instrumental variables yields more plausible estimates of price sensitivity and value of time.     

The risk in using financial reports in the study of airline business models

A review of published articles has shown that many researchers use financial reports as the main source of information in regard to airline business models. A study of accounting policies and other external information, however, has highlighted the differences in assumptions as to useful lives and the residual values of aircraft, which are the principal assets of airlines. While the considerable, unexplained differences in the accounting policies of enterprises with similar business models indicate there may be risk in using this data, the risk can be eliminated by making appropriate adjustments in the financial statements.     

An empirical investigation of European airline business models: Classification and hybridisation

Airline business models are evolving and what was once a clear distinction between low-cost carriers (LCCs) and full-service carriers (FSCs) is now less apparent. LCCs and FSCs are merging into new hybrid carrier business models, a convergence accomplished in different ways by various airlines. This paper aims to establish how many types of business models exist and to examine the defining characteristics of the various levels of hybridisation. This is an empirical study based on a sample of 49 European airlines. Data are collected in a categorical format, where appropriate, or transformed into categorical variables if numerical. The methodology employed for analysis is the well-established k-modes technique. The clustering process indicates that there are four observable airline categories: FSCs, LCCs, and two hybrid types in between.     

The impact of carbon emission fees on passenger demand and air fares: A game theoretic approach

The implementation of an environmental market-based measure on U.S. aviation industry is studied. Under this policy, each airline pays a carbon fee for the carbon dioxide emissions it generates. The impact on ticket prices and corresponding market shares is investigated via the joint estimation of an air travel demand model and an airlines' behavior model. In the demand model, aggregate air traffic data is used to determine the marginal effects of flight attributes that are specific to itinerary, airline and airport on market share. The airline's behavior model incorporates the carbon fee in the airline marginal cost. After the implementation of the carbon policy, the increased cost forces airlines to adjust ticket prices in order to maximize profits. The results obtained by the proposed model indicate a moderate price increase which strongly depends on the per tonne carbon price. Air travel demand falls from 2.4% to 21% depending on the carbon price level.     

Assessing the air cargo business models of combination airlines

Notwithstanding the fact that the air cargo business is generally a secondary one to the passenger business for combination airlines, it can have an important role to play in their profitability. However, growing challenges are threatening the market positions of the combination airlines. Improving their market positioning depends, amongst other factors, on appropriate business models. Yet, the literature on the air cargo business models of combination airlines is scarce. This paper aims to contribute to closing this gap.The research presented herein aimed to identify the representative business models of the combination airlines' cargo strategies. Three strategies have been considered. The research method included a series of structured interviews with key informants from combination airlines, namely: TAP Cargo, Brussels Airlines Cargo, SATA Cargo, Turkish Cargo, SWISS WorldCargo, Finnair Cargo, AF-KLM Cargo, Emirates SkyCargo, Lufthansa Cargo and IAG Cargo.The ten air cargo business models and the representative business models of each strategy are described. The results suggest an overlap between the business models of different strategies. In addition, the results show that an evolution in strategy does not necessarily require a redesign of the business model, but tailored changes in specific components.     

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.     

Sources of intermittent demand for aircraft spare parts within airline operations

Owing to the sporadic nature of demand for aircraft maintenance repair parts, airline operators perceive difficulties in parts demand forecasting. In this paper we investigate the sources of demand lumpiness, as a function of flying hours, that may affect the parts demand rate. Experimental results of demand lumpiness, measured by the square coefficient of variation (CV²) and the average inter-demand interval (ADI), are examined and clarified through statistical analysis. The general linear model approach is used to explain the variation attributable to the various experimental factors and their interactions. Actual historical data for hard-time and condition-monitoring components from an airlines operator are used. This study shows that aircraft utilization rate can be a major source of lumpiness since it increases and decreases the square coefficient of variation and the average inter-demand interval respectively for the observed demand. This assumes a strictly linear relationship between demand and flying hours/landings.     

Leisure travel in Europe and airline business models: A study of regional airports in Great Britain

Tourism and air transport are explicitly linked especially in the context of leisure traffic. This paper highlights this relationship by focusing on the impact of the three main airline business models (traditional scheduled, charter and low-cost) on regional airports using Britain as a case study. The panel data econometric results show that despite the current perception, low cost carriers are not the only ones to contribute significantly to airport aeronautical and non-aeronautical revenue. This observation has important policy implications and calls for transparency in airport subsidies as argued in the conclusion.     

The determinants of air passenger traffic at Turkish airports

Investigating the determinants of air passenger traffic has become commonplace. In contrast with most previous publications, this paper investigates these determinants in an emerging country, Turkey, at the provincial level between 2004 and 2014. We find that GDP/capita, population, distance to alternative airports, tourism, leading cities, and international migrations all support more air traffic. Furthermore, market concentration is associated with less traffic, and the presence of academics with more traffic. Mapping models' residuals suggest catchment areas, surface transport options, domestic migrations and (geo)politics could also matter. Accordingly, it appears the determinants of Turkey's air passenger traffic do not differ from those of developed economies. The results also suggest new airports should be built based on the aforementioned factors.     

The persuasiveness of framed commercial messages: A note on marketing implications for the airline industry

This study uses the concepts of customer segmentation and time pressure to examine the persuasiveness of commercial message framing. It finds positively framed (PF) messages are more persuasive than negatively framed (NF) messages when directed toward intensively involved air travelers under time pressures but that NF messages are more persuasive when directed toward interested air travelers not under any great time constraints. Further, uninterested (minimally involved) air travelers may fail to be persuaded by any message framing regardless of how pressed they are for time.     

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.     

The impact of airline financial distress on US air fares: A contingency approach

This article investigates to what extent an airline’s financial distress impacts its pricing behavior. While prior research suggests that, on average, distressed airlines sell at lower fares, it is hypothesized that the magnitude of this effect may depend on certain firm and market specific contingencies. A large-scale empirical analysis using panel data from the US airline industry is conducted. The results indicate that firm financial distress and air fares are generally negatively related. It is further shown that the magnitude of the effect of distress on fares decreases with the magnitude of operating costs and firm’s market shares and increases with firm size and the level of market concentration. Implications for policy makers and managers are discussed.     

When legacy carriers converge with low-cost carriers: Exploring the fusion of European airline business models through a case-based analysis

The paper makes uses of cognitive mappings developed from personal interviews with a number of European airline executives to examine the differences in managerial attitudes of low-cost and transitional carriers. In particular it explores the extent to which there is a convergence of views regarding the ways various airline models will develop in the future.     

Estimating the impact of airport privatization on airline demand: A regression-based event study

This paper develops an empirical model of passenger demand for routes of airports subject to either imminent or recent privatization. We investigate whether the privatization process produces a sequential impact over traffic. By employing a regression-based event methodology and controlling for fixed effects, price endogeneity and sample selection, we perform an econometric analysis of pre-privatization and post-privatization dynamic patterns of demand to infer the demand consequences of the major change in airport governance. We examine recent Brazilian airport privatization experience as a case. The main results suggest that privatization produced an overall increase in airline demand and that the airport notably recognized with the greatest demand potential and with the largest market penetration of a fast-growing low cost newcomer had the highest estimated ceteris paribus effect of privatization on demand.     

The costs of peak-load demand: An application to Gran Canaria airport

Many airports suffer from peak-load demand problems. To meet unconstrained demand at peak periods, they often invest in extra capacity that may be under used at other times. We use data from the airport in Gran Canaria to illustrate that costs associated with the peak-load problem are not only those related to the new investment. This paper provides a methodology for analyzing the costs arisen due to the peak-load demand, to explore alternative airport policies and to illustrate the problem of congestion at airport terminals. The results suggest that a situation in which airports differentiate charges by peak and off-peak days would be much desirable.     

Calculating load factors for the transatlantic airline market using supply and demand data – A note on the identification of gaps in the available airline statistics

This paper takes a critical view of the verification of load factors for the direct transatlantic airline market by combining supply and demand-data. The supply-related data originate from the Official Airline Guide, a well-known data source that contains information on scheduled flights. The demand-related data originate from the Marketing Information Data Transfer database, a data set containing information on actual airline bookings. Combining both data sets enables us to calculate the seat occupancy of direct flights between North-West Europe and the US for 2001. Based on the results, we assess the utility of the joint use of these data sources for aviation economic research, and identify various gaps in the available airline statistics.     

The demand for US air transport service: a chaos and nonlinearity investigation

This paper examines the behavior of the US airline industry's service demand. Monthly aggregate data for the industry are analyzed. While we find strong evidence of nonlinear dependence in the air transport service time series, the evidence is not consistent with chaos. We also show that GARCH models successfully explain the nonlinear structures in the US airline industry's service series. Finally, within-sample forecasts of air transport demand from the GARCH models outperform those of simple autoregressive models.     

Impact of e-business on air travel markets: Distribution of airline tickets in Korea

Early e-business activity in the airline industry was limited to the provision of flight schedule information to customers on websites. Recently, however, many airlines have expanded the capability of their web sites for selling tickets to make use of this cheap distribution channel. Here, we explore the impacts of airline e-business on the performance of air ticket distribution channels. Through a conjoint analysis, we suggest a model to estimate the change of market sales for each distribution channel. The impact of e-business on air travel markets and some implications on e-business strategy for both airlines and travel agents are also identified through an empirical survey.