The economics and geography of regional airline services in six countries

Do the determinants of service and pricing on “regional” routes – linking towns and smaller cities to main trunk routes and/or to each other – differ from the established results from the literature? We study all flights (about 3000) on all regional routes (about 250) with scheduled airline service from one of about 130 regional towns or cities, in regional airline markets in six countries: Australia, Canada, New Zealand, Norway, Sweden, and a sample of three U.S. states which closely resemble the other regions studied. For each flight we have observations on up to five prices offered at different times before flight date. We also have equipment type and social-economic data. Overall, our results give qualified support to the standard gravity model of the extent of service between city pairs, though with two interesting differences: operators on regional routes have greater flexibility in the size of aircraft they can deploy, which results in a finer-grained variability of service offerings and, the presence of competition on regional routes has a large effect on the total supply of seats. We are able to successfully estimate a well-specified airfare model, which shows strong effects of competition on prices, quite substantial intertemporal price discrimination, and interesting differences between regional and main trunk route pricing.     

Air deregulation in China and its impact on airline competition 1994–2012

China’s air transportation has experienced rapid growth and major reforms in the past three decades, some of which have been partially successful and are still ongoing today. The paper aims to analyze China’s air deregulation experience over the last two decades and its impact on airline competition from a geographical perspective. After the establishment of the “Big Three” in 2002, the paper reveals that there has been a trade-off between the extent of deregulation and airline competition in China because the central government has tended to strengthen the “Big Three” rather than totally open the market to private and locally owned airlines. The paper uses each airline group as the basic unit of analysis and reveals that (1) the air market has been more concentrated in the “Big Three” as a result of the process of air deregulation; (2) airline competition in over two thirds of the airports and one half of the routes has increased in the last 18 years, but the core airports and trunk routes are chiefly dominated by the “Big Three”. The peripheral airports and thin routes have been operated by private and locally owned airlines; and (3) regionally, airline competition has occurred in most airports of the eastern region, and it is more intense than in the central and western regions. But even here, competition in the eastern region has however decreased in 1994–2012. The three main contributions of the paper are: (1) the use of two measures of competition in the airline market; (2) the analysis of the historical evolution of competition; and (3) an understanding the role of the geography of competition in the Chinese airline market.     

Vertical relations in the air transport industry: A facility-rivalry game

This paper investigates contracts between airports and airlines, in the context of two competing facilities and three types of agreements. The downstream market consists in a route operated by one leader and n ? 1 followers competing à la Stackelberg in each facility. We develop a multistage game where each airport and its dominant airline decide whether to enter into a contract and which one to engage in. We find that the airport and its dominant airline have incentives to collude in each facility. Nevertheless, the equilibrium is not efficient in terms of social welfare: there is a misalignment between private and social incentives.     

Quantity price discrimination in the air transport industry: The easyJet case

This paper extends the literature on low-cost carriers' pricing strategies by investigating the presence of quantity price discrimination implemented through a two-part tariff in offered fares. By analysing Internet fares for all easyJet flights departing from the Amsterdam Schiphol airport between March and April 2015, we search for price differentials based on the number of seats booked by a single consumer. We find that the lowest average unit price is associated with a single consumer reserving 5 seats. On average, the per-seat discount for a single consumer reserving 5 seats is €9.48, which is 14% of the single-seat fare. Additionally, a multivariate analysis shows that quantity discounts are greater for flights with a larger fraction of available seats at the time of booking, the seats are booked longer in advance, and the destination's gross domestic product per capita is greater. Conversely, quantity discounts are lower for longer routes, larger destination airports, and routes for which easyJet's market share is higher.     

Impact of operational performance on air carrier cost structure: Evidence from US airlines

The impact of operational performance on airline cost structure is empirically investigated using an aggregate, statistical cost estimation approach. Two distinct sets of operational performance metrics are developed and incorporated into the airline cost models as arguments. Results from estimating a variety of airline cost models reveal that both delay and schedule buffer are important cost drivers. We also find that flight activity outside schedule windows increases cost, whereas flight inactivity within schedule windows does not. Using the estimated cost models, we predict the cost savings to airlines of “perfect” operational performance, obtaining an estimate in the range of $7.1–13.5 billion for 2007.     

Mergers and acquisitions in aviation – Management and economic perspectives on the size of airlines

This paper reviews literature and management perspectives on airline mergers and acquisitions. We find that M&A/consolidation is seen as a “game-changer” and mandatory to survive in aviation markets. We, therefore, apply DEA models to 66 airlines to evaluate whether big is indeed always beautiful. Our results suggest that the optimal airline size is between 34 and 52 bn available seat kilometre capacity and that airlines with more than 200 bn ASK are definitely too large to operate efficiently. This also applies when revenues are included in the DEA models, which is central as yield management and ancillary revenues are increasingly important.     

Investigating the effects of economies of scope on firms’ pricing behavior: Empirical evidence from the US domestic airline industry

This study investigates to what extent cross-product (belly cargo) output affects (passenger ticket) prices in the US domestic airline industry. The empirical analysis indicates that greater cargo volumes generally result in lower air fares, presumably as a result of the airlines’ realization of economies of scope. This magnitude of this price effect, however, depends on certain firm and route market characteristics. The findings of this study add to extant research on economies of scope, multi-product yield management and airline pricing and provide important insights for policy makers and airline managers alike.     

Pricing strategies of low-cost airlines: The Ryanair case study

We analyse the pricing policy adopted by Ryanair, the main low-cost carrier in Europe. Based on a year's fare data for all of Ryanair's European flights, using a family of hyperbolic price functions, the optimal pricing curve for each route is estimated. The analysis shows a positive correlation between the average fare for each route and its length, the frequency of flights operating on that route, and the percentage of fully booked flights. As the share of seats offered by the carrier at the departure and destination airports increases, fares tend to decrease. The correlation of dynamic pricing to route length and the frequency of flights is negative. Conversely, as competition increases discounts on advance fares rise.     

The formulation and evaluation of transport route planning alternatives: a spatial decision support system for the Via Baltica project,Poland

Transport planning plays an undeniably key role in the economic growth of any region. However, when done heedlessly this planning can be detrimental to the biophysical and social environment of the region. In transport route planning generally one or a few alternative routes are proposed, usually representing the interest of the proponent. If required, an environmental impact assessment is carried out on these alternatives. Although, EIA and SEA are meant to be effective in taking informed decisions about the proposed route, these alternatives – the heart of impact assessment – are themselves devised in a subjective and non-spatial manner.Such an approach may easily overlook routes, which could otherwise have been more suitable. A planning system that directly takes into account environmental and socio-economic considerations in selecting alternative routes facilitates sustainable development. This paper presents a holistic and coherent spatial multi-criteria network analysis method for the generation of optimal routing alternatives under different policy visions, in a network of existing roads.The presented methodology was case-tested for the highly contested 340 km portion of the Via Baltica corridor in Poland, a part of the trans-European transport network (TEN-T) program. The methodology shows its ability to serve as a versatile effect-based decision support system for transport route planning at a strategically higher level of planning, particularly for (geographically) large-scale investment schemes.     

Effects of upgrading to cycle highways - An analysis of demand induction,use patterns and satisfaction before and after

ObjectiveThe objective of the present study is to investigate the effects of improvements made to two large, interconnected bicycle infrastructure in the western suburbs of Copenhagen, Denmark, on bicycle volumes and mode share, and cyclists' behaviour, perceptions, and experiences.MethodsEffects are assessed by analysing data from automatic counting stations during 35 months to measure the changes in bicycle volumes on the investigated routes. Furthermore, a questionnaire survey repeated three times – before, and one and two years after opening the improved routes - is used. Findings are supported by a control survey at a nearby facility, which was not influenced by the infrastructure improvements.ResultsThe investments related to the two investigated cases of infrastructure improvements resulted in a significant increase in the volume of bicyclist two years after the improvements. On one of the routes, the “Albertslund Route”, on weekdays during the rush hour in daylight, an increase from 126 to 203 bicyclists/h was recorded, whereas an increase from 24 to 32 bicyclists/h was recorded at “Vestvolden” for the same period. Most of the increase could be attributed to relocation of bicyclists from other routes. Induced cycling trips – trips that were not previously made by bicycle - were estimated to account for only 4–5% of the bicyclists two years after improvements. Bicyclists using the improved route express an increase in satisfaction with the quality of the facilities, which is significantly higher than at the control site.ConclusionData from the counting stations provides useful information if measured over a long period. This is necessary to correct for factors such as climate effects and temporal variation. Investments in cycle infrastructure in the investigated case led to a higher number of bicyclists who were mainly relocated from other routes. A minor increase in the modal share of cyclists was observed two years after the infrastructure improvements. Furthermore, the investments resulted in a higher degree of satisfaction among active bicyclists. If measured over a longer period, this could lead to a higher modal share due to a potential social advertising effect.     

En-route weather and place valuations for different transport mode users

With the increasing societal interest in climate change, mostly separated strands of literature have investigated the travel-behavioural, thermo-sensational and environmental–psychological effects of weather on people in everyday life. This research conceptually and statistically integrates these fragmented insights. Drawing on unique Greater Rotterdam (The Netherlands) travel diary data enriched with hourly meteorological and spatial route attributes, we analyse how weather affects different transport mode users’ en-route place valuations in terms of liveliness, friendliness and aesthetics. Our main findings indicate that windy, cloudy, cold (<15 °C) or too hot (⩾25 °C) weather conditions negatively affect en-route place valuations, either directly or through lower thermal comfort. Active mode users generally value their route surroundings more positively than motorised transport modes, however they also appear more strongly affected by weather in their thermal experiences and place valuations. Policy makers are advised to expand climate-sensitive urban planning along active transport mode infrastructures.     

Design speeds and acceleration characteristics of bicycle traffic for use in planning,design and appraisal

This paper reports the results of a study of a cohort of cyclists to determine their speed and acceleration characteristics relative to gradient and other influencing factors in order to supply data for planners, designers and appraisers of cycle infrastructure schemes. A cohort of everyday cyclists was supplied with a global positioning system device and a heart rate monitor and asked to collect data from their journeys in Leeds, UK.The analysis determines the cyclists’ speeds and accelerations at every point on their journey and elevation data, corroborated by mapping information, was used to determine the gradient. Two linear regression models of speed and acceleration were estimated and show that the influence of a downhill gradient on speed is less pronounced than the effect of an uphill gradient. The results indicate an eighty-fifth percentile speed on the flat of 22 kph, and for a downhill gradient of 3%, 25 kph. The power required to cycle has been estimated and shows that cyclists deliver around 150 W on the flat, but that this rises to around 250 W climbing hills. Mean acceleration on the flat is 0.231 m/s² and the average power output over the acceleration phase, which is of mean duration 26 s, is approximately 120 W. Air resistance accounts for approximately 70% of the resistive force when cycling at design speed.It is recommended that designers adopt 25 kph as a design speed for gradients less than 3%, but that consideration should be given to design speeds of up to 35 kph for steeper gradients. Free-flow speeds in this range should be used when modelling mode and route choices and in benefit appraisal.     

Searching for the sweet spot: The determinants of direct services from Canadian airports

In markets for scheduled passenger travel services, demand may be not independent of supply. On airline routes the speed, convenience and frequency of services affect demand along with price and other economic factors. This generates the possibility of multiple equilibria. For 185 domestic Canada and trans-border city-pair routes, of which 101 currently lack non-stop service, we find that twelve of the latter (all trans-border routes) have a “sweet spot” – although current passenger numbers do not justify non-stop service, were this to be introduced, it would turn out to be economically justified by the boost in the attractiveness of the route.     

Exploring the impacts of land use by service coverage and station-level accessibility on rail transit ridership

In this study, we employ spatial regression analysis to empirically investigate the impacts of land use, rail service coverage, and rail station accessibility on rail transit ridership in the city of Seoul and the surrounding metropolitan region. Our analyses suggest that a rail transit service coverage boundary of 500 m provides the best fit for estimating rail transit ridership levels. With regard to land use, our results confirm that density is positively related to rail transit ridership within a 750 m radius of each station. In contrast, land use diversity is not associated with rail transit ridership. We also found that station-level accessibility is as important as land use for explaining rail transit ridership levels. Finally, we conclude that development density and station-level accessibility measures such as the number of station entrances or exits and the number of bus routes at the station are the most important and consistent factors for promoting rail transit ridership.     

A note on the determinants of airline choice: The case of Air Asia and Malaysia Airlines

Logit analysis is employed on primary data from departing air passengers at the Penang International Airport, Malaysia to examine the determinants of airline choice between incumbent Malaysia Airlines and low-cost Air Asia. With the exception of educational level and ethnicity, other socio-demographic characteristics do not play a statistically significant role in determining airline choice. Instead, behavioral factors such as concerns over schedules and fares, routes, booking methods and purpose of journey are found to be predictors of airline carrier choice.     

Micro-level analysis of airport delay externalities using deterministic queuing models: a case study

We analyze runway delay externalities at Los Angeles International Airport (LAX) using a deterministic queuing model. The model allows us to estimate the delay impact of each specific arriving flight on each other specific arriving flight. We find that, despite being only moderately congested (average queuing delay only 4 min per arriving flight), individual flights can generate as much as 3 aircraft-hours of external delay impact on other flights, with an average impact of 26 aircraft-minutes and 3400 seat-minutes. About 90 percent of this impact is external to the airline as well as the flight, a consequence of the lack of a dominant airline at LAX. We then compare the delay impact of each individual flight to its contribution to schedule convenience by determining the amount of “schedule delay” that would result if the flight were eliminated and its passengers forced to use the previous flight flown by the same airline from the same origin. We find that a number of commuter flights serving high density, short-haul segments generate much more queuing delay than they save in schedule delay, with the ratio exceeding 10 in several cases. We argue that social welfare would increase if such flights were eliminated, upsizing others as necessary to accommodate the displaced loads.     

Cyclists' exposure to air pollution and road traffic noise in central city neighbourhoods of Montreal

It is well known that bicycling in urban areas has beneficial effects on people's health and well-being. On the other hand, urban cycling, especially during the morning and evening commute, may be associated with health and safety risks due to potentially high levels of exposure to air pollution, road noise, and high traffic density. Few studies have, however, measured cyclists' exposure to noise and air pollution simultaneously.The objective of this research is to evaluate cyclists' exposure to air pollution and noise in central city neighbourhoods of Montreal and to identify the impact on exposure of associated local factors such as weather conditions, the day and time, the type of road, bicycle path or lane used and the characteristics of the immediate environment around the cyclist's route.A total of 85 bicycle trips were analyzed, representing 422 km of travel and nearly 25 h of data collection. The mean exposure levels were 70.5 dB(A) for noise and 76 μg/m³ for nitrogen dioxide (NO₂). A very weak negative correlation was found between the two measures of exposure (R² = − 0.07, p = 0.005).The results of the spatial regression models show that the morning commute and trips on collector roads and on-street bike lanes and shared bike lanes have significant and positive impacts on exposure to air pollution and noise. On the other hand, some factors are only significant for one or the other of the two types of exposure.     

Observations of fundamental changes in the demand for aviation services

This paper addresses the seemingly inexorable decline in yield in the airline industry. The external shocks to the industry of the terrorist attacks of 9/11/2001, wars in Afghanistan and the Arabian Gulf and SARS all had downward impacts on the demand for air travel. However, these effects mask a more fundamental change in the demand for aviation services. The analysis uses published sources and a survey of 264 travellers to examine the fall in yields. The traffic mix of economy, business and first class passengers is shown to have changed over a 10 year period as proportionally more travellers choose to use economy class products. This combined with a fall in yield by a third in this cabin during the same period has lead to a significant fall in industrywide yields. Behavioural shifts in business travel and leisure demand are examined. Business travellers have switched from business class products as the difference between business class and leisure fares have increased significantly and as economy class and low-cost carrier products are increasingly viewed as acceptable for business traveller needs, particularly in short-haul markets. Leisure travel has increased as low-cost carriers have introduced low fares, generating new traffic and winning market share from scheduled and charter airline competitors alike.     

A supply chain network design model for biomass co-firing in coal-fired power plants

We propose a framework for designing the supply chain network for biomass co-firing in coal-fired power plants. This framework is inspired by existing practices with products with similar physical characteristics to biomass. We present a hub-and-spoke supply chain network design model for long-haul delivery of biomass. This model is a mixed integer linear program solved using benders decomposition algorithm. Numerical analysis indicates that 100 million tons of biomass are located within 75 miles from a coal plant and could be delivered at $8.53/dry-ton; 60 million tons of biomass are located beyond 75 miles and could be delivered at $36/dry-ton.     

Competitive responses to low cost carrier entry

Recent research has found that the entrance of a low cost carrier leads to lower prices on routes it has entered. This paper extends this analysis by examining the impact of route entry by a discount carrier, ValuJet into an established carrier’s hub, Delta, and by examining price changes on routes not entered by the low cost carrier. We found that Delta lowered its fares on competitive routes terminating in Atlanta and on routes flowing through its Atlanta hub in response to competition by ValuJet. We did not find evidence that Delta increased fares on non-competitive routes (either those terminating in Atlanta or flowing through Atlanta) to compensate for lost revenues on the competitive routes. This final result runs counter to the conjectures of the DOT and supports the argument that firms practice rational economic pricing in their hub-and-spoke networks. ©