Flight delay impact on airfare and flight frequency: A comprehensive assessment

This paper presents a comprehensive empirical analysis of flight delay impact on airfare and flight frequency in the US air transportation system. We model airfare and flight frequency as functions of cost and demand characteristics, competition effects, and flight delays at origin, destination, and intermediate hub airports. Estimation results confirm that airlines tend to pass delay cost onto passengers through higher fare, whereas delay has an upward effect on flight frequency. We find that proportionate airport delay reduction across the system can result in annual fare reduction in the order of billion dollars.     

An airline's management strategies in a competitive air transport market

Over the last decade, the demand for domestic and international flights in Korea has increased substantially. To meet the strong flight demands, several low cost carriers have begun to offer flight services. In addition, full service carriers have been motivated to establish their own subsidiary low cost carriers to maintain their market share against rival low cost carriers. This paper studies the management strategies of three kinds of airlines - full service carrier, its subsidiary low cost carrier and rival low cost carrier - based on game theory in the competitive air transport market. Each airline is assumed to act as a player and chooses strategies regarding airfare, flight frequency, and the number of operating aircrafts for specific routes while maximizing its own profits. Demand leakages between the airlines are considered in the flight demand function according to the selected strategies of all airlines. Through various game situations reflecting realistic features, this study provides managerial insights that can be applied in the competitive air transport market.     

The airfare pricing and seat allocation problem in full-service carriers and subsidiary low-cost carriers

This study investigates the competitive market situation in the air transport industry considering full-service carriers (FSC), subsidiary low-cost carriers (LCC) and rival LCCs on the flight-leg level while subsidiary LCCs are established by FSCs against rival LCCs to keep the market share and to make more profit. It is assumed that the demand of economy class for each airline follows a known distribution, and the mean value of that distribution is a function of its airfare and the airfare differences with other airlines. In addition, no-shows and cancellations are introduced to reflect a real situation. Based on this situation, a mathematical model is developed to derive efficient airfare pricing and seat allocation for each airline for maximizing the profit sum of both FSCs and subsidiary LCCs using a repeated game. A repeated game model integrated with a Tabu search algorithm and an EMSR based heuristic is suggested to deal with the proposed repeated game. A numerical example is provided to validate the model and solution procedure with hypothetical system parameter values under two kinds of market situations that show before and after the emergence of subsidiary LCCs.     

Network competition and the difference in operating cost: Model analysis

In this paper, we propose a bi-level air transport market model which can handle the shape of network, airfare and service frequency as airline’s control variables and passenger’s behavior. We apply the model to the simple duopolistic market and observe how airlines change their network shape. We assume two types of airlines, the incumbent and the entrant, having different operating cost and conduct numerical computation. From the results, we discuss the features of network equilibrium considering difference in operating cost and confirm that inviting low cost carriers contributes to improving social welfare.     

A dynamic demand analysis of the United States air-passenger service

This study examines the short- and long-run effects of various determinants on the demand for US air passenger-services using the Johansen cointegration analysis and a vector error-correction (VEC) model. Results show that, in the long-run, airfare, disposable income and NASDAQ have significant effects on US air travel demand. The combined short-run dynamic effects of disposable income, NASDAQ, population and airfare jointly explain changes in air passenger-miles. Finally, we find that the 9/11 terrorist attacks drop air passenger demand by 5% during 2001:Q3-2002:Q2, which in turn pushes down the seat capacity by 4%. However, it has little impact on airfare.     

Airfare pricing determinants in hub-to-hub markets

This paper expands upon past works in airfare pricing determinants by looking at a set of airports infrequently studied as a whole group by themselves, the hubs. The nature of hub-to-hub markets makes them unique and while they are unique in some aspects certain trends affecting all commercial air transportation markets are also seen affecting hub-to-hub markets. Pricing in hub-to-hub markets in the United States is examined and then on a carrier-by-carrier basis. Pricing in hub-to-hub markets is affected by a number of statistically significant variables including route type, presence and type of low fare carrier, and competition in hub-to-hub markets.     

Weekend effect in airfare pricing

Internet traffic during weekends is lighter than at weekdays, allowing airlines to adopt a distinctive pricing policy during the weekend. By analyzing the daily airfares for 1000 US domestic routes, this study tests whether a weekend effect exists in the level and dispersion of airfares. It finds a strong weekend effect for airfare dispersion, but not for price level. This suggests that different arrival timing of online consumers during the weekdays motivate airlines to adopt a distinctive pricing mechanism during weekends, by offering occasional discounts while maintaining the same fare level on average.     

Modelling airport and airline choice behaviour with the use of stated preference survey data

The majority of studies of air travel choice behavior make use of revealed preference (RP) data, generally in the form of survey data collected from departing passengers. While the use of RP data has certain methodological advantages over the use of stated preference (SP) data, major issues arise because of the often low quality of the data relating to the un-chosen alternatives, in terms of explanatory variables as well as availability. As such, studies using RP survey data often fail to recover a meaningful fare coefficient, and are generally not able to offer a treatment of the effects of airline allegiance. In this paper, we make use of SP data for airport and airline choice collected in the US in 2001. The analysis retrieves significant effects relating to factors such as airfare, access time, flight time and airline and airport allegiance, illustrating the advantages of SP data in this context. Additionally, the analysis explores the use of non-linear transforms of the explanatory variables, as well as the treatment of continuous variations in choice behavior across respondents.     

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.     

The business passenger niche: Comparing legacy carriers and southwest during a national recession

We examine how legacy and low-cost air carriers’ roles in serving business passengers in the US changed during the global economic recession from 2007. Quarterly data is examined to test the impact of a recession on the air travel behavior. We find that since 2007 business passengers represent a declining proportion of legacy carriers’ passenger volume, while they represent an increasing proportion of Southwest’s passengers. This trend suggests that Southwest’s market niche has shifted, and that the airline now plays a role similar to that of legacy carriers.     

Analysis of Iranian passengers' behavior in choosing type of carrier in international air travel to East Asia

Increased demand for East Asia flights from Tehran has intensified competition between Iranian and foreign carriers. In addition, the entrance of low-cost carriers (LCC) will make this competitive market even more intense. In this condition, carriers are striving to gain more market share by improving services and discounting their fares. Therefore, analyzing air travel demand is valuable for carriers' long term and short term planning. This study empirically investigates passengers' behavior in choosing five types of carriers in many groups of passengers using multinomial logit (MNL) and nested logit (NL) models. The data were collected through the stated preference (SP) questionnaire designed based on orthogonal main-effect. The main survey was conducted in the Imam Khomeini International (IKI) airport in July 2013 where 480 questionnaires were collected through face-to-face interviews. The results show that the ticket fare, the possibility of travel on desired date and time, international air travel experience, Frequent-flyer program (FFP) membership status, marital status, and gender are statistically significant contributors in explaining carrier choice. Interaction effects between trip purpose and ticket fare are statistically significant in choosing carriers. The results further indicate that business travelers are more willing to pay than non-business travelers for flights on desired date and time, although varying by type of carrier.     

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.     

Multimarket contact, alliance membership, and prices in international airline markets

This paper tests the mutual forbearance view in the context of airline alliances in the international air travel market. Using passenger booking and airfare data on transpacific routes, we find consistent evidence for the positive association between multimarket contact and airfares. Our results also suggest that multimarket contact between non-aligned airlines is associated with higher airfares, whereas multimarket contact between airlines in the same alliance has no additional upward impact on airfares. Moreover, it is shown that higher airfares tend to exist when airlines have greater multimarket contact on open-skies routes. In restrictive (non-liberal) international markets, however, multimarket contact may not affect airfare.     

Financial investment behavior tendencies of air carriers

This study looks at the financial investment behavior of air carriers in Taiwan and the US stock markets. Application of the DHS model via behavioral finance theory indicates a tendency of becoming overly confident in Taiwan's domestic market. It is also known that Taiwanese investors react with excess optimism regardless of market conditions. Availability of private information before and after public announcements has little effect on investment behavior. Contrarily, US investors indicate a lower degree of overconfidence.     

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.     

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 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.     

A ticket to ride: Evolving landscapes of air travel accessibility in the United States

During the past decade, air passenger service in the United States has been exposed to numerous carrier bankruptcies, antitrust investigations, mergers, labor problems and a massive increase in competition. These internal elements, combined with the rising costs of fuel and the threat of terrorism combine to make a relatively uncertain air travel landscape for both passengers and operators. Moreover, these dynamics have generated significant geographical shifts in airline route structures and airports serviced by commercial carriers. These factors, combined with increasing levels of consumer access to fare and routing information, have altered the landscape of air travel accessibility in the United States. The purpose of this paper is to examine issues of consumer air travel accessibility through an analysis of three critical measures: flight segments, flight time and ticket costs. In addition, a typology of air passenger accessibility is generated for the 156 busiest commercial airports in the United States using these three measures. Results suggest significant local and regional biases in time and cost, relative to distance, for many US markets.     

An empirical analysis of Canadian international air policy: effects of dual carrier designation and partial liberalization

This paper assesses the impact on air traffic of Canada's policy of allowing two Canadian flag carriers (dual-designation) to operate in select Canadian international markets. The secondary objective is to assess the effect of Canada's partially liberalized bilateral air services agreements. Using panel data covering Canada's 33 bilateral markets over the 1982–1994 period, we find the following results: (a) dual designation/operation of Canadian carriers in a country-pair market increases total traffic volumes in the market as well as increases the combined passenger volume and market share of Canadian carriers, and (b) Canada's partially liberalized bilateral air services agreements have significantly increased air traffic in those country-pair markets.Two policy implications follow from this research. First, Air Canada's recent merger with Canadian Airlines is expected to have a significant negative impact on total traffic volumes as well as on Canadian carrier traffic volumes and market shares on the country-pair markets both Air Canada and Canadian served previously. Second, not only the US style full liberal bilaterals or open skies, but also partial liberalization of bilateral markets Canada adopted appears to generate consumer welfare benefits.