Airline network choice and market coverage under high-speed rail competition

While the existing literature has focused on the short-term impacts, this paper investigates the long-term impacts of high-speed rail (HSR) competition on airlines. An analytical model is developed to study how an airline may change its network and market coverage when facing HSR competition on trunk routes. We show that prior to HSR competition, an airline is more likely to adopt a fully-connected network and cover fewer fringe markets if the trunk market is large. Under HSR competition, the airline will, for a given network structure, have a greater incentive to cover more fringe (regional or foreign) markets if the trunk market is large, or the airline network is close to hub-and-spoke. Further, the airline will, for any given market coverage, move towards a hub-and-spoke network when the trunk market is large, or the number of fringe markets covered by the airline network is large. Both effects are more prominent when the decreasing rate of airline density economies is large. We further show that HSR competition can induce the airline to adopt network structure and market coverage that are closer to the socially optimal ones, thereby suggesting a new source of welfare gain from HSR based on its long-term impacts on airlines. Implications for operators, policy makers and specific countries (such as China) are also discussed.     

Heuristic approach to the airline schedule disturbances problem

Abstract

When disturbances make it impossible to realise the planned flight schedule, the dispatcher at the airline operational centre defines a new flight schedule based on airline policy, in order to reduce the negative effects of these perturbations. Depending on airline policy, when designing the new flight schedule, the dispatcher delays or cancels some flights and reassigns some flights to available aircraft. In this paper, a decision support system (DSS) for solving the airline schedule disturbances problem is developed aiming to assist decision makers in handling disturbances in real-time. The system is based on a heuristic algorithm, which generates a list of different feasible schedules ordered according to the value of an objective function. The dispatcher can thus select and implement one of them. In this paper, the possibilities of DSS are illustrated by real numerical examples that concern JAT Airways' flight schedule disturbances.     

The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores

As a result of the liberalisation of airline markets; the strong growth of low cost carriers; the high volatility in fuel prices; and the recent global financial crisis, the cost pressure that airlines face is very substantial. In order to survive in these very competitive environments, information on what factors impact on costs and efficiency of airlines is crucial in guiding strategic change. To evaluate key determinants of 58 passenger airlines’ efficiency, this paper applies a two-stage Data Envelopment Analysis (DEA) approach, with partially bootstrapped random effects Tobit regressions in the second stage. Our results suggest that the effects of route optimisation, in the sense of average stage length of the fleet, are limited to airline technical efficiency. We show that airline size and key fleet mix characteristics, such as aircraft size and number of different aircraft families in the fleet, are more relevant to successful cost management of airlines since they have significant impacts on all three types of airline efficiency: technical, allocative and, ultimately, cost efficiency. Our results also show that despite the fuel saving benefits of younger aircraft, the age of an airline’s fleet has no significant impact on its technical efficiency, but does have a positive impact on its allocative and cost efficiency.     

Competition and deregulation: Do air passengers get the benefits?

It is well established that increased airline competition can produce benefits to passengers, and it is generally assumed that airport deregulation, as part of the same process of liberalisation, will produce similar benefits. But this paper shows that this may not be the case. The potential benefits to passengers from increased airline competition will in general be partially absorbed by increased airport charges at unregulated airports, and in some circumstances this may even result in increases in overall charges, not reductions. This problem is sometimes tackled by putting regulated price caps on aeronautical services, but if these are not extended to the complementary commercial services (such as retailing) which airports also provide then the adverse effects may still occur. Similarly, unilateral deregulation leading to increased airport competition in one country may just lead to the majority of the gains going abroad. Overall, the conclusion is that claims of big passenger gains from deregulation and competition may be exaggerated, and achieving these gains in reality may need subtle and quite far-reaching government intervention.     

Air transportation in a carbon constrained world: Long-term dynamics of policies and strategies for mitigating the carbon footprint of commercial aviation

With increasing demand for air transportation worldwide and decreasing marginal fuel efficiency improvements, the contribution of aviation to climate change relative to other sectors is projected to increase in the future. As a result, growing public and political pressures are likely to further target air transportation to reduce its greenhouse gas emissions. The key challenges faced by policy makers and air transportation industry stakeholders is to reduce aviation greenhouse gas emissions while sustaining mobility for passengers and time-sensitive cargo as well as meeting future demand for air transportation in developing and emerging countries. This paper examines five generic policies for reducing the emissions of commercial aviation; (1) technological efficiency improvements, (2) operational efficiency improvements, (3) use of alternative fuels, (4) demand shift and (5) carbon pricing (i.e. market-based incentives). In order to evaluate the impacts of these policies on total emissions, air transport mobility, airfares and airline profitability, a system dynamics modeling approach was used. The Global Aviation Industry Dynamics (GAID) model captures the systemic interactions and the delayed feedbacks in the air transportation system and allows scenarios testing through simulations. For this analysis, a set of 34 scenarios with various levels of aggressiveness along the five generic policies were simulated and tested. It was found that no single policy can maintain emissions levels steady while increasing projected demand for air transportation. Simulation results suggest that a combination of the proposed policies does produce results that are close to a “weak” sustainability definition of increasing supply to meet new demand needs while maintaining constant or increasing slightly emissions levels. A combination of policies that includes aggressive levels of technological and operations efficiency improvements, use of biofuels along with moderate levels of carbon pricing and short-haul demand shifts efforts achieves a 140% increase in capacity in 2024 over 2004 while only increasing emissions by 20% over 2004. In addition, airline profitability is moderately impacted (10% reduction) compared to other scenarios where profitability is reduced by over 50% which pose a threat to necessary investments and the implementation of mitigating measures to reduce CO2 emissions. This study has shown that an approach based on a portfolio of mitigating measures and policies spanning across technology and operational improvements, use of biofuels, demand shift and carbon pricing is required to transition the air transportation industry close to an operating point of environmental and mobility sustainability.     

Factors affecting the operational success of strategic airline alliances

With increased liberalisation in major air transport markets, the intensity of competition has increased amongst air carriers. Airlines have responded to the competitive pressures in many ways, one of which has been the formation of alliances. These alliances are linkages between the firms at various operational levels. They go beyond the common interlining agreement to encompass certain marketing and cost-reducing features. However, the question is how the success of these alliances can be ensured? While companies' culture compatibility is important and much has been written in that area, this paper focuses on factors that affect operational success of airline alliances. The operational success is measured by the change in the level of partners' inter-hub traffic due to formation of the alliance. This research has developed a methodology which could be used as a management tool to measure alliances' operational success before embarking on such agreements. The analysis of recent major alliances covering 52 inter-hub routes suggests that the main factors ensuring the alliances' operational success are: the partners' network size and their compatibility, the frequency of service between the hubs of the partners, the flight connection time at the hub and the level of competition on their network.

     

Financial lessons from Asian experience in constructing and operating high speed train networks

A serious interest in high speed train has been increasing all over the world. However, recent experiences in Asian countries show that high speed rail projects are not financially viable even in areas seemingly favorable to rail operations. Considering the existing intensive highway and airline network, putting public subsidies to high speed rail projects are barely justifiable from a purely economic point of view. What is required of any government which contemplates high speed rail construction as a policy option is to show taxpayers the cost/revenues difference between constructing a high speed rail line and expanding a capacity of other means, before proceeding.     

Capital structure in the world airline industry

This article presents a managerial approach to the airline capital structure through a definition of an efficient frontier. To develop the analysis a technique called data envelopment analysis was used. This paper tests the hypothesis that airline industry's financial performance depends on companies keeping a reasonable level of leverage and also seeks to establish this level. The research identifies the biggest airline companies which use capital efficiently to generate return with a low level of fixed assets. In these companies, shareholders' capital represents at least 40% of all funds employed. It could be seen by simplifying the analysis that it is possible to identify the most and the least efficient companies by studying their indebtedness and return on assets. A large proportion of the companies are moving to reduce their level of indebtedness and raise their returns over the course of time. The analysis by country revealed that countries do not offer comparative advantages, with the companies' performance depending fundamentally on their management.     

Methodologies to monetize the variations in load factor and GHG emissions per passenger-mile of airlines

Global GHG emissions from air travel are currently at 3% and it could increase to 15% of the total GHG emissions by 2050. To curb the growth of GHG emissions from air travel, the U.S. Federal Aviation Administration (FAA) has created a policy to achieve carbon neutral growth by 2020 relative to the 2005 baseline. If the airline industry is to both grow and meet the objectives set by this policy, new and innovative aircraft designs, operational efficiencies, and widespread use of alternate fuels are required. To accomplish this would require large research and development investment. The federal government and state governments have passed legislations that provide tax breaks and other incentives to encourage investments in new technologies. One such tax policies is cap and trade system. This had partial success in reducing GHG emissions in certain industries but was not successful in the airline industry. This paper presents alternate methods to raise capital to invest in GHG emissions reduction projects in the airline sector. The four methodologies presented here monetizes the GHG emissions resulting from differences in load factor (ratio of number of passengers to number of seats) and GHG emissions per passenger-mile among different airlines, among different flight sectors, etc. to raise the capital. Based on 2012 air travel data, these methodologies could raise more than $300 million dollars annually to invest in GHG emissions reduction projects.     

Assessment of a transport policy potential for intermodal mode shift on a European scale

Policies of general nature for improving the competitive position of intermodal transport have not always been successful. On the contrary, specific policies, such as targeting the supply chain or the offered services and transport are probably more effective in identifying and subsequently shifting transport from road to intermodal. The aim of the paper is the development of a methodology with the necessary tools to assess the potential of a specific policy measure to produce a modal shift in favour of intermodal transport. In addition, for the cases of positive outcomes, the necessary elements for the policy action plan are presented. The methodology comprises of three parts: a toolbox called the macro-scan, which assesses the potential for modal shift, a sensitivity analysis and the policy action plan. Thus, an insight on the impact of a modal shift on supply chains and on the potential for modal shift is acquired. The methodology, developed within the SPIN Research Project of the European Commission, will be useful to policy makers at governmental level as well as to the private sector, especially in the European Union countries.     

Competition policy and the liberalisation of European aviation

The European aviation industry is undergoing a process of liberalisation. One of the important lessons of American deregulation was that the industry is not perfectly contestable. One implication of this is that actual competition on a route is important in order to be able to secure the benefits of deregulation or liberalisation. Another is that effective competition policy is important in order to prevent anti-competitive mergers or predatory behaviour. This paper reviews the merger investigations in European aviation which have accompanied the search by carriers to secure the benefits of market power, and considers the extent of route competition within the European Community and its relationship to the different route licensing policies of different national governments. The paper considers the extent of present competition on the busiest routes, and stresses the importance of cabotage rights in opening up the European market to effective competition.     

Exploring airline passengers’ willingness to pay for carbon offsets

This study examines airline passengers’ willingness to pay for carbon-offsets. Using the contingent valuation method of double-bounded dichotomous choice format and a survey of over 1000 Taiwanese passengers flying to countries in Asia, Europe, North America, and Oceania to gauge their willingness-to-pay for airline carbon-offsets. The results suggest that despite the trip characteristics and personal background, air travel passengers’ knowledge and perceptions of the carbon-offset scheme also greatly influence the stated willingness to pay.     

A bi-objective dynamic programming approach for airline green fleet planning

Ensuring a fleet of green aircraft is a basic step in mitigating aviation pollution issues that are expected to be worsen in the coming years due to rapid air traffic growth. This study proposed a novel methodology in green fleet planning in which both profit and green performance of airline are considered simultaneously and explicitly. To do this, a Green Fleet Index (GFI) is derived as an indicator to quantify the green performance of airline’s fleet. It measures the degree of airline compliance with a standard requirement in terms of emission, noise, and fuel consumption. A bi-objective dynamic programming model is then formulated to find optimal aircraft acquisition (lease or purchase) decision by minimizing GFI and maximizing profit. Several interesting results are obtained: (1) considering environmental issue as secondary objective yields a greener fleet; (2) airline’s profit is affected, but could be recovered from environmental cost savings; (3) increasing load factor is an effective operational improvement strategy to enhance airline’s green performance and raise profit level. It is anticipated that the framework developed in this study could assist airlines to make a smart decision when considering the need to be green.     

A tool for calculating aircraft emissions and its application to Greek airspace

This paper quantifies the impact of aircraft emissions on local air quality and climate change. Aircraft emissions during the cruise cycle and the landing/take-off cycle are considered. A tool is developed that computes emission values using real-time air traffic data derived from various databases. Emissions include carbon dioxide, hydrocarbons, carbon monoxide and nitrogen oxides. The overall output is a detailed ‘emissions map’ of a given territory that enables the identification of critical emission spots including routes, airports, season, aircraft type and flight category. The method can be used for real-time monitoring of airline emissions and for policy analysis. The proposed tool and resulting outputs are illustrated in the case of the Greek airport system using domestic, international and overflights. Demand volatility driven mainly by tourism and its impact on emissions is assessed.     

Hierarchical evaluation scheme on technology sourcing for advanced public transport systems

Advanced public transport system (APTS) technologies have received much attention from industry researchers in recent years for their evident importance to economic growth. The development of critical APTS technology, such as the contact-less smart card (CSC), in newly industrialized areas receives its impetus from the experience of developed countries. The evaluation of technology sourcing with a higher growth potential in CSC technology has become a critical issue for Taiwanese firms. However, past research rarely emphasized it. This paper utilizes the grey statistical method with survey techniques and the analytic hierarchy process to develop an integrated evaluation model for solving the technology-sourcing problem. An empirical case of the CSC technology sourcing in Taiwan was chosen to demonstrate the application of the proposed model on this issue. The research results suggest that the application of the model provides a sensible path for company policy makers to effectively cope with the technology-sourcing evaluation problem.     

Competition and public service obligations in European aviation markets

This paper analyzes the effect of universal service policies on the airline markets of five European Union countries (France, Germany, Italy, Spain and the United Kingdom) in the period 2002–2010. Results show that airfare discount schemes for island residents raise demand and positively affect competition and the number of flights at the route level. These effects are evident in France and Italy, but are particularly marked in Spain. By contrast, public service obligations (PSOs) reduce competition on the protected routes, while their effect on the number of flights differs depending on national regulations. In Spain, routes protected with PSOs have greater flight frequencies than those on unprotected routes of similar characteristics, but in France, Italy and the UK the opposite result is found. The empirical model also finds that on routes with low-cost airlines market concentration is smaller and there is a larger number of flights. This result is relevant for the design of universal service policy, since in recent years low-cost airlines have entered a number of thin routes and have increased access to air transportation.     

A framework for evaluating the dynamic impacts of a congestion pricing policy for a transportation socioeconomic system

This paper provides a modeling framework based on the system dynamics approach by which policy makers can understand the dynamic and complex nature of traffic congestion within a transportation socioeconomic system representation of a metropolitan area. This framework offers policy makers an assessment platform that focuses on the short- and long-term system behaviors arising from an area-wide congestion pricing policy along with other congestion mitigation policies. Since only a few cities in the world have implemented congestion pricing and several are about to do so, a framework that helps policy makers to understand the impacts of congestion pricing is currently quite relevant. Within this framework, improved bus and metro capacities contribute to the supply dynamics which in turn affect the travel demand of individuals and their choice of different transportation modes. Work travel and social networking activities are assumed to generate additional travel demand dynamics that are affected by travelers’ perception of the level of service of the different transportation modes, their perception of the congestion level, and the associated traveling costs. It is assumed that the, population, tourism and employment growth are exogenous factors that affect demand. Furthermore, this paper builds on a previously formulated approach where fuzzy logic concepts are used to represent linguistic variables assumed to describe consumer perceptions about transportation conditions.     

A Pareto-improving hybrid rationing and pricing policy with multiclass network equilibria

This paper extends the work on Pareto-improving hybrid rationing and pricing policy for general road networks by considering heterogeneous users with different values of time. Mathematical programming models are proposed to find a multiclass Pareto-improving pure road space rationing scheme (MPI-PR) and multiclass hybrid rationing and pricing schemes (MHPI and MHPI-S). A numerical example with a multimodal network is provided for comparing both the efficiency and equity of the three proposed policies. We discover that MHPI-S can achieve the largest reduction in total system delay, MHPI can induce the least spatial inequity and MHPI-S is a progressive policy which is appealing to policy makers. Furthermore, numerical results reveal that different classes of users react differently to the same hybrid policies and multiclass Pareto-improving hybrid schemes yield less delay reduction when compared to their single-class counterparts.     

Exploring temporal fluctuations of daily cycling demand on Dutch cycle paths: the influence of weather on cycling

In the pursuit of sustainable mobility policy makers are giving more attention to cycling. The potential of cycling is shown in countries like the Netherlands, where cycling covers 25 % of all person trips. However, the effect of policy interventions on cycling demand is difficult to measure, not least caused by difficulties to control for changing context variables like weather conditions. According to several authors weather has a strong influence on cycling demand, but quantitative studies about the relationship are scarce. We therefore further explored this relationship, with the aim of contributing to the development of a generic demand model with which trend and coincidence in bicycle flows might be unraveled. The study is based on time-series between 1987 and 2003 of daily bicycle flows, collected on 16 cycle paths near two cities in the Netherlands. The regression analyses show that, not surprisingly, recreational demand is much more sensitive to weather than utilitarian demand. Most daily fluctuations (80 %) are described by weather conditions, and no less than 70 % of the remaining variation is locally constrained. The regression can therefore mainly be improved by incorporating path specific, as yet unknown, variables. We used the regression results to calculate weather-inclusive bicycle flow predictions and found indications of a downward trend in recreational demand. This trend has been off-set in the observed flows by more favorable weather conditions over the years considered.     

The transition to electric bikes in China: history and key reasons for rapid growth

Annual electric bike (e-bike) sales in China grew from 40,000 in 1998 to 10 million in 2005. This rapid transition from human-powered bicycles, buses and gasoline-powered scooters to an all-electric vehicle/fuel technology system is special in the evolution of transportation technology and, thus far, unique to China. We examine how and why e-bikes developed so quickly in China with particular focus on the key technical, economic, and political factors involved. This case study provides important insights to policy makers in China and abroad on how timely regulatory policy can change the purchase choice of millions and create a new mode of transportation. These lessons are especially important to China as it embarks on a large-scale transition to personal vehicles, but also to other countries seeking more sustainable forms of transportation.