The value and usage of ticket flexibility for short haul business travellers

Fully flexible business class and “full economy” airline tickets are aimed at meeting the needs of business travellers whose travel requirements may change after a ticket is purchased. The provision of these products has implications for airlines’ revenue management systems, which may lead to overbooking and denied boarding. Low-cost carriers have developed a method by which tickets can be changed only when required. This paper investigates the usage and value of ticket flexibility by business travellers as the popularity of high fare-fully flexible tickets has fallen in recent years. A survey of 284 business travellers showed that business travellers change their flight arrangements in only 32% of short haul trips. A stated preference study investigated the likelihood of respondents to change tickets in three hypothetical scenarios. The results indicate that to extend a business trip for business purposes travellers are confident that their company will bear the cost of changing a ticket valuing additional time at about £54 per hour but that the value of personal time when travelling is fairly low at £15 per hour. The study concludes that business travellers do not need to change their tickets often and that when they do, low-cost carriers offer a more cost-efficient method of providing ticket flexibility. This pay-for-usage approach to ticket flexibility undermines the traditional airlines’ pricing structures and this has contributed to the reduced, relative value of business class and full economy class tickets for short haul air travel.     

The relationship between air travel behaviour and the key life stages of having children and entering retirement

The airline industry sets fares in the knowledge that market segments behave differently in response to pricing changes. Traditional market segments, typically split into business and leisure travellers, can be developed further through the examination of the influence that life stage exerts upon air travel choices, particularly for leisure trips. Life stage can be defined as a specific, optional event. The two key life stages of having children and entering retirement are examined in this paper in relation to individual air travel behaviour, in order to determine the primary characteristics of the associated market segments. The paper is based on a series of household air travel surveys and focus groups. Findings show the distinct characteristics of family air travel, such as higher air fare sensitivity, as well as in-group variations due to factors such as the age of the child (or children). Retirement is also shown to impact upon air travel, affecting individuals in different ways. Some in retirement take advantage of greater time availability and fly more frequently; others will cut back, say due to health problems. Aviation industry implications, both in terms of surface access to airports and regional airport provision, are also presented.     

Segmentation of low-cost flights users at secondary airports

Low-cost carrier services are important for many tourist destinations. However, there is little information about the characteristics of travellers using low-cost airlines, and their flight preferences. The typical segmentation of air travellers is business versus leisure travellers; and business versus tourist fares. We use segmentation analysis focusing on low-cost travellers’ valuations of various flight attributes and trip-related characteristics, most notably those related to destinations, based on a sample of foreign travellers who used Girona Airport, Spain.     

Legacy carriers fight back: Pricing and product differentiation in modern airline marketing

The adoption of the low-cost carrier business model has applied competitive pressure on established network or “legacy” carriers, by offering fares at prices that legacy carriers find it difficult to match and still cover their fixed costs. This paper reports how two medium-sized national airlines-Air New Zealand and Air Canada-have coped with the low-cost threat by, in effect, turning their fixed costs into profit centres. Features such as full regional networks, long-haul connections, frequent flyer programs, membership in global alliances, lounges and business class cabins can be bundled into products which can be marketed and sold profitably to business and even some leisure travellers, and which cannot be easily replicated by low-cost carriers. Although not panaceas, the innovations of Air New Zealand and Air Canada to the competition they face in their domestic and trans-border markets demonstrate the possibility of an effective legacy carrier response to the low-cost carrier business model.     

Misunderstandings about airline growth

Consolidation is a myth. Data suggest that the airline industry is not consolidating. Competition is either increasing or almost constant, depending on the type of measurement. Hubs are here to stay because half the O–D travel in the world is in markets too small to be served nonstop. Fortunately, small markets are willing to pay. Hubbed carriers’ economic strength is observable in the US ticket price data. Growth has not lead to bigger airplanes—trend in airplane size has been flat to declining since 1985. The evidence is the same in all regions of the world. Big airplanes spend more time on the gate and turn slower, increasing system costs. For small airplanes, value is created by frequency. The share of the largest size shows significant decline. Industry real yields have been declining at 2–3% a year, but cost savings do not need to match this pace. Longer trips and leisure markets have lower yields, so yield can change as the mix changes, even while fares are stable. Data show flat business fares and leisure fares declining by 1% per year. Cost savings continue to match the decline in fares. Jets, high-bypass engines, revenue management, travel agency fees, and competitive wages have each had their turn in reducing costs.     

Have the major forces driving leisure airline traffic changed?

Here, we examine the major forces that are driving leisure airline traffic to assess whether these have changed in recent years. Initially this is undertaken by considering global patterns of airline and tourism demand and then by a more detailed investigation of the UK situation. The research indicates that airline demand is becoming less sensitive to income changes and also that the share of income spent on air travel is not showing much growth. Both of these suggest that airline demand may be becoming more mature, with growth being increasingly driven by price reductions rather than income changes. Moreover, evidence from the UK shows that changing customer preferences, and subsequent industry developments to accommodate these, appear to be having a significant impact on the demand for different types of leisure air trips.     

Investigating business traveller heterogeneity: Low-cost vs full-service airline users?

This paper investigates business traveller heterogeneity using data from a survey carried out amongst airline passengers. Traditional methods employed are usually based on mean responses, thus providing an incomplete picture of what business travellers perceive to be the main sources of differentiation in the airline industry. Factor analysis was used to find types of travellers through grouping of preferred attributes. Then, ordered discrete response methods were used to assess which attributes are perceived in a different way by the two types of travellers identified by factor analysis, controlling for route and passenger characteristics. The results show that a substantial portion of business travellers, who previously did not fly for business reasons, use low-cost air services. Furthermore, after having experienced the low-cost product, business passengers tend to reassess the valuation of some attributes in a way which is more favourable to the LCC. Hence, we conclude that LCC marketing strategies should be aimed at getting business travellers to experience the low-cost product.     

The influence of socioeconomic characteristics,land use and travel time considerations on mode choice for medium- and longer-distance trips

This paper contributes to the limited number of investigations into the influence of the spatial configuration of land use and transport systems on mode choice for medium- and longer-distance travel (defined here as home-based trips of 50 km and over) in the Netherlands. We have employed data from the 1998 Netherlands National Travel Survey to address the question as to how socioeconomic factors, land use attributes, and travel time affect mode choice for medium- and longer-distance travel, and how their role varies across trip purposes: commuting, business, and leisure. The empirical analysis indicates that land use attributes and travel time considerations are important in explaining the variation in mode choice for medium- and longer-distance travel when controlling for the socioeconomic characteristics of travellers.     

Exploring characteristics of passengers using traditional and low-cost airlines: A case study of Belgrade Airport

Low cost carriers entered the Serbian air travel market after Serbia joined the European Common Aviation Area (ECAA) in 2006, prompting the development of healthy competition among airlines and resulting in significant traffic increase at Belgrade Airport. The aim of this paper is to examine the characteristics of passengers traveling on low-cost carriers (LCC) in comparison with those traveling on traditional airlines by using cluster analysis, and to provide practical implications to airport management in tailoring their strategies to meet growing demand. A comprehensive passenger survey was recently conducted at Belgrade Airport on the routes where competition between traditional and LCC carrier exists. The results reveal that emigrants, primarily encouraged by favorable fares, constitute a substantial portion of LCC passengers. Affordable service offered by LCC has also been a positive stimulus for emigrants, who purchase tickets for their friends and relatives to visit them in their host countries. On the other hand, passengers using traditional airlines could be generally classified into two segments, those who fly on business and those who fly for leisure purposes, and each had specific needs when choosing their airline.     

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.     

Examining the impact of weather variability on non-commuters’ daily activity–travel patterns in different regions of Sweden

By jointly modelling the routine and leisure activity–travel engagements of non-commuters in different regions of Sweden, this paper explores the interactions between time allocation, travel demand and mode choice under different weather conditions. Combined weather and travel survey datasets that span a period of over 13 years were analysed. Simultaneous Tobit models were applied to explore the interactions among these activity–travel indicators, whilst municipalities’ unique conditions and heterogeneities between different time-points were taken into account. The model results reveal the trade-offs between routine and leisure activities in terms of activity duration, number of trips and travel time. Positive mutual endogeneity was found between slow-mode share in routine and leisure trips. The results also highlight the trade-offs between routine and leisure activities under abnormal weather conditions. Regional differences between weather effects are substantial due to differences in direct, indirect and total marginal effects. Between-municipality variability constitutes a considerable part of the variability in activity duration and travel time. Between-municipality variability in leisure activity duration and leisure travel time is larger in northern Sweden, while that of routine activity duration and routine travel time is larger in central Sweden, after weather and social demographics have been controlled.     

Network dependency and airline competition – Consequences for remote areas in Norway

Due to the long stretched shape of the country and sparse population many regions in Norway are dependent on air travel that involves chained trips with two or more legs. Northern Norway and the west coast are particularly dependent on such networks. In these areas a number of short take-off and landing airports and subsidised regional airlines engaged in a public service obligations route tendering systems. However, regions dependent on competitive network travel have not all benefited from the last ten years of competition which has lead to lower fares on the main routes and ‘through-fares’ for network travellers have become relatively expensive. This is because there is only one network airline offering through fares. Network travel where one leg is commercially provided and not covered by public service obligation rules, leaving regulation authorities to intervention when fares are excessively high on other legs.     

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.     

Airframe manufacturers: Which has the better view of the future?

For the development of Airbus’ A380 and Boeing's B787 it seems that these manufacturers have differing views of future airline networks. This paper assesses from published sources the likely preferences of leisure and business passengers for different airline network approaches and also assesses airline strategies through the economic cycle. The manufacturers seem to have substitutable aircraft types. Both leisure and business travellers are increasingly price elastic and growth in both markets means both aircraft type will be successful aircraft meeting differing needs. However, airline market-share strategies are likely to undermine the success of hub by-pass or hub-to-hub focus strategies throughout the cycle.     

Elasticities of demand for leisure air travel: A system modelling approach

In this study, the UK outbound demand for leisure air travel has been examined using a demand system which takes into account the ways in which the expenditure on air fares interacts with both the expenditure on non-fare components of travel abroad and with expenditure on domestic leisure. The findings suggest that there is a strong link between total consumer expenditure and expenditure on air travel with the expenditure elasticity greater than one but that, considered in aggregate, the demand for air travel is moderately inelastic with respect to air fares alone. However, the findings also show that interactions between air travel expenditure, other costs of travel abroad, as well as expenditure on leisure activities in the UK, involve sizeable cross-price elasticities.     

Tourism destination preferences of low-cost airline users in the East Midlands

Increasing demand for air travel, associated with the boom in low-cost airlines, has assisted tourism growth. Expanding opportunities from regional airports underpin an increased propensity to fly. This paper examines European tourism destination preferences and price sensitivity to fly by population segment from an air travel household survey in the East Midlands region of the United Kingdom. Of the eight typical low-cost airline destinations presented to respondents cultural locations such as Rome are preferred. Weekend break leisure trips are particularly attractive to those in employment. Price sensitivity, suggests that increasing financial pressures will have an impact upon growth, however demand for an annual holiday is important, particularly for families.     

Localized competitive advantage and price reactions to entry: Full-service vs. low-cost airlines in recently liberalized emerging markets

This paper empirically investigates price reactions to the entry of the low-cost carrier Gol Airlines in the Brazilian domestic market in 2001. Given the substantial reduction in unconditional yields of the incumbent airlines on routes actually entered by Gol, we perform an econometric analysis of the determinants of pricing power along with the analysis of the pattern of price reactions by incumbent legacy carriers. Using data from a panel of routes disaggregated at the airline level, we obtain that (i) both airport and route presence are relevant at explaining pricing behavior; (ii) price responses vary significantly according to flight distance and the amount of seats supplied by the entrant, in the sense that the shorter the route, and the more the seats offered by the newcomer, the stronger the price reactions from the incumbents, with significant point estimates in the range 22–26% in yield reduction for routes as short as 350 km (approx. 195 miles). More generally, the results shed light on the impacts of airline deregulation in emerging markets and the issue of localized competitive advantage due to product differentiation in the industry.     

The decline of the traditional travel agent model

This article analyzes the struggle between traditional travel agencies and airlines to gain control of the Spanish airline services market. Also analyzed is the strong emergence of a third player, online travel portals that act as online travel agencies. We use a multinomial logit model to study the influence of 27 socio-economic factors and trip attributes on passenger purchase channel choice. The results show that the profile of a passenger who has a greater likelihood of making his/her bookings online is that of a young person, a student or educated to a high level, a habitual traveler, booking a simple journey and using an LCC. The factors linked to an increased likelihood of making purchases by phone include: being male, middle-aged, on a business or short trip, and the passengers usually use a travel agency. Finally, passengers who are over 65 years of age, with a lower academic level, who use a travel agency and are going to make a more complicated journey, are more likely to purchase their tickets in-store.     

Greenhouse gas emissions from flying can offset the gain from reduced driving in dense urban areas

Numerous studies have illustrated how denser urban forms lead to smaller greenhouse gas (GHG) emissions from passenger transport. Many of these studies have excluded aviation since the association between urban structure and air travel is not as intuitive as it is the case of ground travel. However, several recent studies have concluded that air travel is a significant contributor to the GHGs from passenger transport. Furthermore, even air travel habits depend heavily on lifestyles and socio-economic factors that are related to the urban form. Here we analyse the interactions between urban structure and different transportation modes and their GHG impacts in Finland. The study utilises the data from the Finnish Transportation Agency’s passenger traffic survey from May 2010 to May 2011, which includes over 12 000 people and over 35 000 trips. The survey is based on one-day travel diaries and also includes additional data on long-distance trips from a longer period. Methodologically, the study takes a traveller’s perspective to assess the GHG emissions from passenger transport. We found that (1) air travel breaks the pattern where GHG emissions decrease with increasing density of urban structures, and (2) in the metropolitan region there is a clear trade-off between car-ownership and air travel in the middle income class. The main policy implication of our study is that air travel must be included in GHG assessments and mitigation strategies targeting travel behaviour. In dense urban regions, the emissions of air travel have the potential to offset the gain from reduced private driving.     

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.