Low cost carrier competition and route entry in an emerging but regulated aviation market – The case of China

Although China lags behind other liberalized aviation markets in low cost carrier (LCC) development, its largest LCC, Spring Airlines, has achieved rapid growth in traffic volume and revenue, as well as consistent profitability, since its inauguration in 2005. Our empirical study on the Chinese domestic market suggests that Spring adopts a “cream skimming” strategy to enter high-priced routes, allowing the carrier to achieve both a very high load factor and considerable profitability. Spring’s capacity and market share on individual routes are constrained to low levels, likely due to government regulation and/or a “puppy dog” strategy adopted by the carrier. As a result, Spring is able to achieve fast growth without triggering price wars. To incumbent full service carriers, high speed rail (HSR) services impose much more significant competitive pressure than low cost carriers. Similar to LCCs in developed markets, Spring prefers to serve markets with high traffic volumes out of its operational base in Shanghai. Overall, Spring’s entry decision is not significantly affected by competition, either from full service airlines or HSR services. Our investigation suggests that LCCs have potential to introduce more competition but are yet to be a “game changer” in China. Further deregulation of the domestic market is needed.     

The importance of time in transit and reliability of transit time for shippers,receivers, and carriers

Reliability of transit time is reputed to be the most important variable influencing freight transport today, according to shipper surveys. Average transit time also plays a major role. A model is developed that shows how a cost-minimizing shipper will adjust its economic order quantity as reliability and/or time in transit changes. Such changes impact on average inventory costs, ordering costs, expected shortage costs and expected excess costs. The model is developed for both discrete and continuous transit time distributions. Reliability is defined as the variance of transit time. A matrix is prepared for some sample data, which shows the minimum cost attainable with each mean/variance of transit time distribution. Comparing across rows and columns of the matrix enables one to show the value (reduction in total cost) obtainable by improving reliability and/or mean transit time. In addition, value can be obtained by improving reliability while increasing average transit time. It is suggested that the model can be used for shippers in negotiating service improvements with carriers and by carriers in negotiating service improvements with shippers. In the former case, the carrier can determine how much they are willing to pay for the improvement, whereas in the latter case, the carriers can determine how much they are able to charge for the improvement.     

Dynamic threshold policy for delaying and breaking commitments in transportation auctions

In this paper we consider a transportation procurement auction consisting of shippers and carriers. Shippers offer time sensitive pickup and delivery jobs and carriers bid on these jobs. We focus on revenue maximizing strategies for the shippers in sequential auctions. For this purpose we propose two strategies, namely delaying and breaking commitments. The idea of delaying commitments is that a shipper will not agree with the best bid whenever it is above a certain reserve price. The idea of breaking commitments is that the shipper allows the carriers to break commitments against certain penalties. We evaluate the benefits of both strategies with simulation. In addition, we provide insight into the distribution of the lowest bid which is estimated by the shippers.     

Decisionmaking in the motor carrier industry

Distinct discrete decisions made by the same economic actor are likely to be correlated, particularly those decisions involved in transportation demand. These correlations may be due to economic interactions among the decisions, or to heterogeneity, or both. This paper develops an econometric method that can distinguish among these possibilities and applies this method to analyzing motor carrier deregulation. One overall goal of the Motor Carrier Act of 1980, which substantially reduced federal regulation, was to promote greater competition in the industry. Other things equal, the more competition in an industry, the less concentration. However, concentration has been increasing among general freight carriers since deregulation. The positive correlations found between the decisions to acquire broker authority and to be a general freight carrier could be due to joint economies between broker authority and general freight carriage, in which case the two interact as economic complements, or to heterogeneity among motor carrier licensees. In the first case, but not the second, deregulation of broker authority could lead to increased concentration in the general freight sector. Empirically, we find that the decisions are correlated due to heterogeneity, but do not interact. Thus, increased concentration in the general freight sector must be attributed to other causes.     

Rate base and rate of return methodologies for determining reasonable rates for captive rail traffic

Proponents of Stand-Alone Costs (SAC) as the maximum limit on rates for captive rail traffic under the Staggers Act propose to use the replacement Cost Annuity (RCA) methodology to measure SAC rather than the pre-existing ICC rate base methodology, Net original Cost (NOC). The case for using the RCA methodology argues that the resulting very large write-up of the rail industry rate base would not constitute a windfall gain to the carriers and would be economically efficient. The rationale for RCA, however, is based on a number of questionable assumptions. Although the case for RCA denies the relevance of the history of rail regulation, the transition problem cannot be ignored in establishing a reasonable rate for captive shippers in the transition to a less regulated rail industry. A “compensated switch” to Trended Original Cost (TOC) is proposed for the rail industry.     

Air carrier demand

Modeling air carrier demand is instrumental to understanding the relative importance of competitive forces that shape the airline environment and determine a carrier's market share. This paper develops a conceptual framework for analyzing carrier demand in a competitive context and applies that framework to study air carrier choice. This framework can be used by carriers to assess the market share and revenue implications of service design, pricing, marketing, and promotional strategies. We adopt an individual traveler choice approach to identify and measure the relative importance of factors which influence air travel demand. Travelers' patterns of air travel, perceptions of carrier service, frequent-flyer program membership, and carrier choice behavior are used to estimate models of individual carrier choice. These models indicate the importance of carrier presence in the origin market, carrier service in a city pair market (share of flights), carrier quality of service reflected in ratings by individual travelers, and traveler loyalty reflected in frequent-flyer program membership on carrier choice. The importance of these variables and the specific quantitative relationship estimated, can be used to estimate the market share impact of service design, pricing, marketing, and promotional changes. The empirical results of this study demonstrate the dramatic impact of frequent-flyer program participation on carrier choice for individual flights. These effects are particularly strong among the most important air carrier market, the frequent business traveler.     

Aligning the purchase of green logistics practices between shippers and logistics service providers

This paper explores shippers’ (i.e. logistics buyers) and logistics service providers’ (LSPs) perceptions of green concerns under diverse contractual settings during the key phases of the logistics purchasing process: request for proposal, negotiations, contracting and execution. Accordingly, it derives recommendations that could increase the actors’ inter- and- intra-organisational alignment on green targets throughout these phases. Empirical data are obtained from eight individual cases of three shippers and five LSPs, representing the buyer/seller roles within logistics arrangements. Contrary to previous literature holding the view that setting more green demands by shippers would guarantee green outcomes, the findings show that shippers’ green demands may hinder green logistics applications due to impediments to LSPs’ asset-sharing strategies. Also, a deadlock situation is revealed in the negotiations phase, where both actors await each other to introduce additional demands/offers—calling for further regulatory intervention to release this deadlock. Moreover, this paper shows how a mismatch of interests in contractual periods between shippers and LSPs can obstruct green investments—signalling that the green criterion is not the decisive factor in shaping shippers’ outsourcing strategies. The findings also stress a lack of follow-up efforts by shippers on green measures that were specified pre-contract, attributing this to contrasting intra-organisational objectives within shippers’ firms. This paper contributes to the green logistics purchasing literature by revealing how different contractual settings play an important role in shaping shippers’/LSPs’ perceptions of green concerns during the logistics purchasing process. Further, it is one of the first studies to provide phase-specific recommendations to increase the actors’ alignment on green targets.     

Scheduling railway freight delivery appointments using a bid price approach

This paper proposes a method for establishing aggressive but achievable delivery appointment times for railroad shipments, taking into account individual customer needs and forecasted available train capacity. The concept of scheduling appointment times is directly patterned after current motor carrier industry practice, so that customers can plan for rail or truck deliveries in the same way.A shipment routing problem is decomposed into a deterministic “dynamic car scheduling” (DCS) process for shipments already accepted and a stochastic “train segment pricing” (TSP) process for forecasting future demands which have not yet called in and for which delivery appointments have yet to be scheduled. Both are formulated as multi-commodity network flow (MCNF) problems, where each shipment is treated as a separate commodity. Gain coefficients represent recapture probabilities that a specific customer will accept a carrier’s service offer.A comparison with a widely used revenue management formulation is given. A Lagrangian heuristic for obtaining a primal solution is also described. The problem is solved within a 1% gap using the subgradient algorithm.     

Improving the energy efficiency of freight in the United States through commodity-based analysis: justification and implementation

Efforts to reduce energy use in freight transportation usually center around “mode-based” approaches, namely improving the energy efficiency of energy intensive modes, such as truck, and shifting more freight to energy efficient modes, such as rail. In the first part of this paper we review the recent trends and future prospects for these mode-based approaches, finding that despite substantial improvement in the technological efficiency of freight modes and robust growth in the use of intermodal rail since 1980, total freight energy use across all modes in the US has grown by approximately 33%, with proportional growth in carbon emissions. In the second part of the paper we propose use of a “commodity-based” approach, in which freight energy use is disaggregated by contribution of major commodity groups, in order to support efficiency improvement at the commodity level. Two potential applications of the commodity based approach, namely (1) life cycle analysis of energy use for major commodity groups and (2) spatial analysis of freight patterns, are demonstrated using the 1993 US Commodity Flow Survey data. Results of these preliminary findings suggest that commodity groups vary widely in the ratio of energy use in production to energy use in transport, and that for many commodity groups, there may be substantial opportunities for saving energy by redistributing flow patterns. Through development of the commodity-based approach, we also identify the collaborative involvement of shippers and carriers as a key point in improving energy efficiency, since it can be used to both make the mode-based approach more effective and address new issues such as the underlying growth in tonne-km. Benefits for air quality and other transportation issues are also discussed.     

Price and frequency competition in freight transportation

This paper develops a simple analytical model of price and frequency competition among freight carriers. In the model, the full price faced by a shipper (a goods producer) includes the actual shipping price plus an inventory holding cost, which is inversely proportional to the frequency of shipments offered by the freight carrier. Taking brand loyalty on the part of shippers into account, competing freight carriers maximize profit by setting prices, frequencies and vehicle carrying capacities. Assuming tractable functional forms, long- and short-run comparative-static results are derived to show how the choice variables are affected by the model’s parameters. The paper also provides an efficiency analysis, comparing the equilibrium to the social optimum, and it attempts to explain the phenomenon of excess capacity in the freight industry.     

The evolution of U.S. rail freight pricing in the post-deregulation era: revenues versus marginal costs for five commodity types

There have now been over three decades of experience with rate-making freedom for all modes of intercity freight transport in the United States. Most evidence suggests that regulatory change has been beneficial for the rail industry and its users. Despite evidence of positive impacts of regulatory reform of U.S. freight transport, there is limited evidence related to long-term pricing trends by commodity in the deregulated era. Moreover, U.S. shipper groups have called for increased regulation of U.S. railroads, citing increased rates and profits, and monopoly pricing to “captive shippers.” This study estimates U.S. railroad revenue-marginal cost ratios for seven different commodities between 1986 and 2008. Interestingly, we find no significant increase in revenue-cost margins for commodities thought to be “most captive” (coal and chemicals), while finding large increases for some commodities thought to be “non-captive.” These results may provide insight into the impacts of regulatory reform in other countries, where there are similar concerns of equitable pricing and financial viability. They suggest that a move toward a more market-based pricing system can enhance railroad viability without harming those with fewer transport options.     

Adoption of Internet Services in Liner Shipping: An Empirical Study of Shippers in Taiwan

Abstract

The Internet service attributes desired by shippers were examined as well as a model that seeks to explain the intention of shippers to use Internet services in liner shipping. Using data collected from a survey of a group of shippers in Taiwan, the relationships among the constructs in the model were tested, namely: perceived usefulness, perceived ease of use, security and use intention. The results suggest that shippers perceive tracing to be the most important service attribute of Internet services, followed by checking for customs clearance, vessel schedules and electronic document services. The findings indicate that perceived ease of use is the major factor affecting the intention of shippers to use Internet services, and that perceived ease of use has a strong positive effect on perceived usefulness. The results also indicate that security has a positive effect on a shipper’s perception of ease of use. However, the influence of security on use intention and perceived usefulness was not supported in this study. The theoretical and practical implications of the findings on the intention of shippers to use Internet services in liner shipping are discussed.     

Rail-truck multimodal freight collaboration: a statistical analysis of freight-shipper perspectives

Due to the effects of congestion, capacity reduction of truck-freight carriers, growing freight transportation demand, and increasing social and environmental concerns, there is a critical need for freight shippers to improve shipping quality and reduce transportation costs. Rail-truck multimodal freight collaboration can potentially address this need. In this study, we explore freight-shipper perspectives relating to the factors that may foster or impede their usage of rail-truck multimodal freight collaboration services, and the correlations of their operational and behavioral characteristics with these factors. The study provides insights to rail and truck carriers on collaboration mechanisms that can address the needs of freight shippers, including adopting synergistic technology to improve in-transit visibility, accommodating non-containerized cargo, improving the transshipment process, designing service quality control strategies, and constructing investment and revenue-sharing plans.     

Motor carrier strategies and performance

This paper examines post-deregulation strategies of less-than-truckload general freight carriers. Data on 38 strategic variables were gathered from annual reports filed with the Interstate Commerce Commission. Cluster analysis was used to categorize the one-hundred and forty firms into four strategic groups identified as follows: (1) differentiation approach coupled with a risky financial strategy; (2) a well-defined focus strategy concentrating on select types of traffic among select shipper groups; (3) a particularly sedentary strategy showing little activity across dimensions; and (4) an aggressive expansion strategy characterized by high growth rates. Major findings are: (1) a well-formulated and clearly defined strategy is an important determinant of financial performance and (2) despite the intense competition brought about by deregulation, an appropriate choice of strategy can provide financial performance comparable to “average” firms in the regulated environment.     

Pedestrian crowd tactical‐level decision making during emergency evacuations

This paper investigates pedestrian crowd tactical‐level decision making during emergency evacuations. Of particular interest is crowd exit‐choice behaviour. Two sources of stated choice data are collected and combined. One data set is derived from an experiment linked to a real‐life exit choice experience of participants (in a non‐evacuation setting). We examine aspects that have often been taken for granted in the literature in connection with egress behaviour of crowds during emergencies. We quantify evacuees' trade‐off between “distance”, “density”, “exit visibility” and “directional density” as well as the interactive effect between exit visibility and tendency to follow others. A comprehensive random‐utility analysis is conducted ranging from traditionally practiced models to the state‐of‐the‐practice methods such as random‐coefficient nested logit. Our findings suggest that (i) unless evacuees face certain levels of uncertainty in the escape environment; flows of crowd are unlikely to be followed. Otherwise, most evacuees perceive other individuals as potential sources of congestion and extra delay (generalisation to situations where crowd is completely unfamiliar with the egress geometry, however, may require careful scrutiny). (ii) Evacuees mostly prefer visible exits over the exits whose congestion level is unknown to them (i.e. the tendency to minimise ambiguity). (iii) The presence of attribute uncertainty (e.g. exit visibility) significantly changes the impact of observing decisions of others on each individual choice maker. We also found out that (iv) spatial distribution of exits has a significant influence on evacuees' decisions (presenting itself in the form of violating the IIA assumption). (v) The marginal weights that different individuals place upon attributes of exits are significantly heterogeneous. (vi) There is meaningful correlation between certain utility weights of individual evacuees. These behavioural findings can provide significant behavioural insight essential for safe evacuation planning and accurate forecast of evacuees' behaviour. Copyright © 2016 John Wiley & Sons, Ltd.     

Travel-based multitasking: review of the role of digital activities and connectivity

ABSTRACT

Travel-based multitasking, also referred to as travel time use, is now a well-established concept, whose existence is supported by the technological trajectories, with mobile information and communication technologies (ICT) and vehicle automation working together to allow travel time to be more productive and enjoyable. Despite existence of reviews of travel-time multitasking studies, the systematic overview of the role digital activities, i.e. those that necessarily require modern ICT equipment to participate, has been limited, often wrapped under the umbrella term “use of ICT”, potentially obscuring their complexity and sophistication. Similarly, the role of connectivity and its attributes, e.g. speed (bandwidth), reliability, price, ease of use, data allowance or security, deserves a more systematic overview given its key role in enabling digital online activities and hence the travel-based multitasking options. This paper provides a review of 77 empirical travel-based multitasking-studies that explored the role of digital activities or connectivity. In particular, the review discusses the existing typologies of digital activities, dividing them into hardware-centric, function-centric or a combination of both (mixed). Subsequently, key contributions are discussed with respect to the treatment of digital activities and connectivity and its attributes. Based on the review, it is possible to observe that the existing studies have looked only at a handful of rather restricted online activities that do not sufficiently capture the sophistication with which individuals interact with the virtual world nowadays. Furthermore, the role of connectivity, although deeply embedded in the “C” of the “ICT” concept, has not been looked at or modelled in any detail in studies related to travel time use or its quality. This existing shortcoming might have resulted in an insufficient understanding of the mechanisms driving travel time use, the associated experience indicators of customer satisfaction, productivity or the consequences for relative attractiveness of transport modes. All of these considerations remain, however, crucial for designing, appraising and operating transport infrastructure and services that are able to take the advantage of lifestyle digitisation to meet the increasing customer needs while also delivering broader economic, social benefits and possibly also environmental benefits.     

Approximation algorithms for the bid construction problem in combinatorial auctions for the procurement of freight transportation contracts

Trucking companies (carriers) are increasingly facing combinatorial auctions conducted by shippers seeking contracts for their transportation needs. The bid valuation and construction problem for carriers facing these combinatorial auctions is very difficult and involves the computation of a number of NP-hard sub problems. In this paper we examine computationally tractable approximation methods for estimating these values and constructing bids. The benefit of our approximation method is that it provides a way for carriers to discover their true costs and construct optimal or near optimal bids by solving a single NP-hard problem. This represents a significant improvement in computational efficiency. We examine our method both analytically and empirically using a simulation based analysis.     

Three-player game-theoretic model over a freight transportation network

With recent development in freight transportation industry, its network structure has become more complicated, as many decision-makers competing for profits with each other are involved. While most recent research in this area is focused on the perfectly competitive market and the prices are given as a constant tariff rate, little attention has been paid to the system optimization problem in the absence of regulatory authority. In this paper, we investigate the competitive equilibrium in an oligopolistic market on a freight network. A partially non-cooperative game among shippers, carriers and infrastructure companies (IC) is examined. All three kinds of players act as profit maximizing agents, except that the carriers and ICs are assumed to behave cooperatively in their own coalitions. We consider the vertically efficient nonlinear tariff schedules which are commonly used in the transportation industry. By introducing a three-stage game-theoretic model, we show that the equilibrium flows can also maximize total system profits if the IC and the carrier both use vertically efficient nonlinear pricing schedules. The division of the surplus associated with each shipment is obtained by solving a linear programming problem. We provide a few examples under different situations to show the existence of the resulting equilibrium.     

How reliable is the bureau of motor carrier safety truck accident data?

This paper examines the degree of compliance with the accident reporting requirements imposed by the Bureau of Motor Carrier Safety (BMCS) of the U.S. Department of Transportation on motor carriers involved in interstate and foreign transport. It also examines the reliability and validity of the accident information reported by these carriers to the BMCS. The study shows that there is a high degree of accident underreporting, especially by the private and exempt carriers, and that the information reported on variables such as cargo weight, gross vehicle weights, and usage of seat belts at the time of accident, is biased toward the interests of the reporters of the accidents.     

The impact of Gulf carrier competition on U.S. airlines

Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network. These carriers’ future growth prospects, however, hinge on their ability to gain access to markets in Europe and America, for example. Existing bilateral agreements stifle the Gulf carriers’ ambitious expansion plans in some instances, and incumbent carriers lobby to restrict further market access. To contribute to this debate, the objective of this research is to empirically examine the effects of Gulf carrier competition on U.S. carriers’ passenger volumes and fares in international route markets. Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with (1) significant growth in U.S.–Middle East traffic volumes and (2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.