De-hubbing of airports and their recovery patterns

The paper analyzes cases of de-hubbing in air transport between 1997 and 2009. It initially addresses the conditions to be met for airports to be identified as de-hubbing cases. Second, it examines what happens after de-hubbing by clustering the cases into homogenous groups that show that, on average, airports that experienced de-hubbing did not recover their original traffic within five years and that de-hubbing is likely to be irreversible. When hub carriers were replaced at least partially by low-cost carriers, airports on average recovered faster. De-hubbing adversely affects the number of destinations served less severely than the seats offered by carriers.     

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.     

Supply-and-demand models for exploring relationships between smaller airports and neighboring hub airports in the U.S.

Airport passenger leakage is the phenomenon of air passengers choosing to travel longer distances to access more extensive air services offered by airlines at an out-of-region hub (or, substitute) airport, instead of using their local airports. Airport leakage can cause further reduction in services offered by airlines at a local airport, thereby causing even further leakage, and so on, which can significantly impact an airport's role in the growth of the local economy. This paper explores the geographic and operational attributes of local-and-substitute airport pairs in the United States, explicitly accounting for the interactive feedback relationship between passenger volumes and air service characteristics that contribute to the onset, persistence, and exacerbation of airport passenger leakage. A two-stage least squares regression model of air passenger demand at small- and medium-sized airports is first presented, where local passengers may travel by vehicle to larger, out-of-region hub airports. The results confirm that airfare and passenger volume relationships exist between the local and substitute airport pairs included in the dataset, and that lower airfares at the substitute airport have a greater impact on airport choices made by larger travel groups. They also suggest the existence of positive feedback in that if an airport attracts increasingly smaller passenger numbers with fewer air services and fewer air services with fewer passengers, without external intervention airport leakage impacts may be irreversible and exacerbate over time. A conceptual market share equilibrium analysis is used to illustrate the mechanisms of a direct two-way feedback relationship between passenger volumes at a local airport and air service characteristics at both the local and substitute airports. With data, this quantitative framework can help guide airport planners in further assessing and verifying suspected passenger leakage issues at their airport. The results suggest that without intervention, airport leakage impacts may be difficult to reverse; further exacerbating the trend are technological advancements that make driving cheaper and easier (connected and autonomous vehicles). However, the results can also guide planners in choosing the types and degrees of infrastructure investments and airline incentives that may be used to expand or retain air services to attract passengers.     

Low-cost carriers versus full service carriers in ASEAN: The impact of liberalization policy on competition

This study analyses the ASEAN Single Aviation Market (ASAM) policy to be introduced by the end of 2015. We conduct a scenario study to estimate the impact of low-cost carrier (LCC) network expansion under liberalized air transport policies in the ASEAN region. Establishing joint ventures is a possible way for foreign carriers to expand the network in this region, even after starting ASAM. This is unique as joint ventures are not only subsidiaries of the full-service carriers, as is the case in the United States and Europe. We also apply a quantitative air transport market model to estimate the policy impact of the entry of new LCCs on routes from three ASEAN hub airports to Manila airport, which covers the impact on the whole network. The model produces several significant results, including that the entry of one LCC on one route may affect the fare, frequency, and profitability of related competitive routes for the entire network.     

Entry patterns of low-cost carriers in Hong Kong and implications to the regional market

This study aims to provide a better understanding of Asia's low-cost carriers (LCCs) by empirically analysing their route entry patterns in Hong Kong. Two alternative models have been tested, namely a standard probit model and a generalized least squares estimation. Consistent findings from the two models suggest that LCCs in Asia have a preference for large markets with big populations, high incomes and high traffic volume. On the other hand, the dominance of incumbent full service airlines (FSAs), fierce route competition and the lack of secondary airports are not critical to the growth of LCCs. However, government regulations and airport access are main impediment factors. Despite the adoption of long-distance low-cost models by the region's airlines, geographic distance still plays an important role in LCCs' entry decisions. For the growth of low-cost travel and associated benefits in the tourism industry and overall economy, it is important for governments in the region to liberalize aviation markets, provide sufficient airport capacity, and promote efficient allocation of airport slots.     

Airlines-within-airlines strategies and existence of low-cost carriers

This paper investigates hub carriers’ airlines-within-airlines (AinA) strategies, intended to establish low-cost divisions offering nonstop flights on rim routes. An initial hub-spoke network is optimal if passenger differentiation between one-stop and nonstop services and via-hub time cost are small. If differentiation is substantial, a mixed one-stop and nonstop (point-to-point) network under AinA is optimal when via-hub time cost is small (large). Low-cost rivals on rim routes weaken AinA adoption and enhance welfare from a monopoly mixed network. In a perfect-substitute case, hub carriers may have excessive incentive to adopt AinA from a welfare viewpoint, especially, when low-cost rivals exist.     

Airport selection criteria of low-cost carriers: A fuzzy analytical hierarchy process

The selection of airport is an important consideration for low-cost carriers (LCCs) to remain cost competitive. The objective of this study is to identify and rank the airport selection criteria of LCCs. Based on reviewing the existing literature, five main factors comprising 16 sub-factors were developed. The factors were first validated by three industry experts from the aviation industry. Thereafter, a survey questionnaire requiring a comparison of the factors was administered on 28 executives who were involved in the strategy planning and formulation of LCCs based in China or Korea. The collected data were analysed using fuzzy analytical hierarchy process (FAHP). In descending order of their importance, the main factors influencing LCCs' selection of airport are (1) airport charges, (2) airport performance, (3) airport growth opportunities, (4) catchment area and (5) airport infrastructure. The top three sub-factors are airport costs, demand for LCC services and passenger throughput. The research contributes to academic research by providing a holistic assessment of the key considerations influencing LCCs' selection of airport. In addition, it implicates policy formulation of LCCs by providing a framework for assessment of airports that are suitable for LCCs’ operations.     

The impact of low-cost carriers on airport choice in the US: A case study of the Washington–Baltimore region

Previous research has shown that low-cost carriers (LCCs) may stimulate traffic at an airport by offering low fares. Using passenger survey data from the Washington–Baltimore region’s three airports, we find that the benefits of LCCs to airports extend beyond the traffic generated directly by the LCCs through their low fares. In addition, we find that the mere presence of an LCC at an airport can attract passengers, even to competing carriers. These “halo effects” from LCC presence increase the significance to airport managers of attracting LCCs in order to generate passenger demand.     

The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe

In a context of limited organic growth, some low-cost airlines have considered business strategies that are changing two key principles of the low-cost airline business model: fare unbundling and point-to-point operations. Using a multivariate analysis we identify the influence of several route characteristics on the share that European pure low-cost and hybrid low-cost carriers have on the routes they operate. Results show that, from a network perspective, the distance between the archetypical low-cost carrier business model and the adapted low-cost carrier business model with a hybrid approach is widening. Differences are also clear between hybrids offering connecting services and hybrids offering fare bundling. The results are also important from an airport policy perspective, since secondary airports and legacy airports in transition could be able to reduce the gap between them and the main hub airports.     

A large neighborhood search heuristic to establish an optimal ad-hoc hubbing strategy in the wake of a large-scale airport outage

Abrupt airport outages can cause diversions and fuel-critical situations for flights, leading to costly passenger misconnections. We develop a large neighborhood search heuristic to optimize the rerouting of flights bound for a disrupted airport to a hub airport that is not disrupted, with the goal of accommodating passengers on existing flights departing the non-disrupted hub. The objective of the heuristic is to identify and reroute flights to the ad-hoc hub(s) – non-disrupted hub airport(s) – that minimize the sum of passenger travel time and wait time. We minimize the passenger cost as the sum of passenger travel time to the diversion airport and wait time for a connecting flight at the ad-hoc hub airport, subject to on-board fuel and diversion airport capacity constraints. We use the heuristic to determine how a coordinated traffic management strategy could have diverted flights immediately following a real-world airport outage.     

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.     

Hub airport slot Re-allocation and subsidy policy to speed up air traffic recovery amid COVID-19 pandemic --- case on the Chinese airline market

With international air travels largely banned around the world amid the global COVID-19 pandemic, many gateway and hub airports have more ideal slots available for reallocation. Airport traffic recovery replaces airport congestion to become the primary challenge of major airports around the world. With the pandemic well controlled domestically in China, the government liberalizes the hub airport slots for those previously forbidden services to the small/regional airports. This paper thus analytically examines the effect of this slot liberalization. The government subsidy to the small airports has also been considered. It is found that the slot liberalization can speed up airport traffic recovery for both hub and small airports. The hub airport slot liberalization leads to a lower level of minimum subsidy to sustain the survival of the small airports. Given any fixed level of subsidy to the small airport, both the total airport traffic and social welfare would improve with the slot liberalization at the hub airport. When the government can adjust the level of subsidy after liberalizing the hub airport slots, the subsidy could be excessive, if the government emphasizes too much on airport traffic recovery. This would, however, harm the overall social welfare.     

Air and high-speed rail transport integration on profits and welfare: Effects of air-rail connecting time

Air-rail integration has become a popular idea to relieve airport congestion and environmental impact of transport industry, especially amid the fast expansion of high-speed rail network around the world. This study examines the circumstances under which air-rail integration can be better justified, by focusing on the effects of reducing air-rail connecting time on transport operators' profits, consumer surplus, and social welfare. We show that while consumers always benefit from less air-rail connecting time (an integrated hub with seamless transfer between air and rail services is always preferred by passengers), operators of the two modes, air transport and high-speed rail, won't have an incentive to integrate unless the cost of integration is sufficiently low. Nonetheless, reducing air-rail connecting time enhances total surplus when the hub airport suffers from a certain degree of capacity constraint and the cost of air-rail integration is not too high.     

Dynamic price dispersion in airline markets

This study analyzes the factors that explain the variations of daily airfares across fare histories, or dynamic price dispersion. Empirical analyses show that dynamic price dispersion is significantly influenced by demand characteristics variables such as population, income and the share of business passengers, as well as by competitive pressures stemming from the presence of low-cost carriers, but not by the competition intensity. The impact of these variables intensifies as the departure date approaches. These results imply that in the presence of low-cost carriers, full-service carriers tend to adopt a more aggressive high-low pricing strategy.     

Price premiums and low cost carrier competition

This study presents a time series examination of price premiums in the US airline industry. Price premiums are defined as price markups due to domination and concentration at the airport and route market levels. The differential effect of these price premium drivers is empirically investigated, and it is shown that the largest components of price premiums are those from airport market share and airport concentration. The effect of low cost carrier competition on the level and composition of price premiums is of particular interest in this study. The results indicate that low cost carriers do not charge price premiums, and that high cost carriers’ price premiums tend to be lower when there is competition by low cost carriers. While the absolute values of price premiums have been fairly constant over the 1992–2002 time frame, the proportion of US passengers subject to price premiums has decreased due to the increasing share of low cost carrier traffic.     

Spatial evolution of airport traffic and air transport liberalisation: the case of Greece

This paper explores the evolution of airport passenger traffic in Greece over the period 1978–2006. The country is a member of the European Common Aviation Area, but despite air transport liberalisation, spatial concentration of traffic and asymmetry remain high and have not decreased significantly over time. Greece is still short of traffic generated by low-cost carriers especially outside the main metropolitan airports. The paper argues that further dispersion of traffic could be possible primarily in the mainland if low-cost carriers decide to dynamically enter the Greek market. Potential benefits for regional and tourism development should induce policy makers to work towards this direction.     

Living “up in the air”: Meeting the frequent flyer passenger

This paper uses a large database of approximately 37,000 passengers and three different estimates to analyse the characteristics of the frequent flyer and the differences between frequent flyers and occasional flyers. The results show that frequent flyers are middle-aged men with a high level of education who take domestic flights for business reasons at both hub and regional airports, where they make a purchase and/or consume F&B. Frequent flyers fly on both low-cost and traditional airlines, are more likely to stay overnight at a relative's or friend's home and travel to the airport by private or rented car.     

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.     

How the presence of low-cost carrier competition scheduling differentiation

This study explores the relation between airline market structure and schedule differentiation. Using a location theory framework applied to product differentiation over the time scale, the analysis relates the level of competition, and the presence of low-cost carriers in non-stop US markets to schedule clustering. As expected from theory, it is found that schedule clustering increases with competition, resulting in reduction in product differentiation. It is also found that this tendency is lower in the presence of low-cost carriers and when there is a strong hub effect where dominant hub airline own, rather than compete with their feeder subsidiaries.