Airport and airlines competition: Incentives for vertical collusion

This paper develops a model of airport and airline competition in a three-stage game. We analyse incentives for vertical collusion between one airport and one airline that compete with another airport and another airline, by means of static and dynamic games. We find that incentives for collusion exist when airports and airlines have different market sizes and, under certain conditions, also when secondary airports and low cost airlines compete with main airports and full service airlines.     

The effect of code-share agreements on the temporal profile of airline fares

This paper aims at investigating how the pricing strategy of European airlines is affected by code-share agreements on international routes. Our data cover several routes linking the main UK airports to many European destinations and includes posted fares collected at different days before departure. By analyzing the temporal profile of airline fares, we identify three main results. First, code-share increases fares especially for early bookers. Second, the higher prices in code-shared flights are offered by marketing carriers. Finally, in single operator code-shared flights (unilateral code-share), the pricing profile is flatter than under parallel code-share.     

Airline emission charges: Effects on airfares,service quality,and aircraft design

This paper explores the effect of airline emissions charges on airfares, airline service quality, aircraft design features, and network structure, using a detailed and realistic theoretical model of competing duopoly airlines. These impacts are derived by analyzing the effects of an increase in the effective price of fuel, which is the path by which emissions charges will alter airline choices. The results show that emission charges will raise fares, reduce flight frequency, increase load factors, and raise aircraft fuel efficiency, while having no effect on aircraft size. Given that these adjustments occur in response to the treatment of an emissions externality that is currently unaddressed, they represent efficient changes that move society closer to a social optimum.     

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.     

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.     

Differences in air passengers’ buying behaviour: findings from Korean and Australian international passengers

Abstract

This paper investigates how air passengers’ expectations, ticket price, airline service quality, value, passenger satisfaction and airline image determine their buying behaviour. To test the conceptual frameworks, path analysis was applied to data collected from Korean and Australian international passengers to examine differences between these two groups. Further analyses were undertaken on different passenger segments between national and foreign airline passengers. The results of the path analysis reveal that air passengers’ buying behaviour differs significantly between Korean and Australian international passengers. Results also reveal that the determinants of air passengers’ buying behaviour differ by airlines.     

On the relationship between airport pricing models

Airport pricing papers can be divided into two approaches. In the traditional approach the demand for airport services depends on airport charges and on congestion costs of both passengers and airlines; the airline market is not formally modeled. In the vertical-structure approach instead, airports provide an input for an airline oligopoly and it is the equilibrium of this downstream market which determines the airports’ demand. We prove, analytically, that the traditional approach to airport pricing is valid if air carriers have no market power, i.e. airlines are atomistic or they behave as price takers (perfect competition) and have constant marginal operational costs. When carriers have market power, this approach may result in a surplus measure that falls short of giving a true measure of social surplus. Furthermore, its use prescribes a traffic level that is, for given capacity, smaller than the socially optimal level. When carriers have market power and consequently both airports and airlines behave strategically, a vertical-structure approach appears a more reasonable approach to airport pricing issues.     

The asymmetric effects of service quality on passengers' choice of carriers for international air travel

The asymmetric effects of service quality on international travelers' airline choice behavior were investigated in this paper. The linear structural equation modeling system was first applied to quantify passengers' perceptions of service quality provided by airlines, which were then used as the input variables of the asymmetric response model developed to capture international travelers' airline decision. Their asymmetric responses to various service quality of airlines were assumed to be either gains or losses with respect to their reference points. The results showed that the asymmetric response model performs better than the traditional logit models that capture only symmetrical effects.     

Airline energy efficiency measures considering carbon abatement: A new strategic framework

In this paper, airline energy efficiency is divided into two stages: Operations Stage and Carbon Abatement Stage. This new two-stage operating framework is a modification of existing ones. Then the model, Network SBM with weak disposability, is presented to evaluate the efficiency of 22 international airlines from 2008 to 2012. The results show that: (1) Most airlines’ energy efficiencies have not declined in the period. (2) The average efficiency of European airlines is higher than that of non-European airlines. (3) Non-European airlines have smaller advancements in efficiency score than European airlines. (4) Most airlines’ efficiencies in Operations Stage are higher than Carbon Abatement Stage.     

Price effects of airlines frequent flyer programs: The case of the dominant firm in Chile

Frequent flyer programs create a switching cost for the consumer and allow firms to obtain rents, for example, by exploiting the principal agent problem existing between the employee who travel and purchases the ticket and the employer paying for that ticket. In Chile LAN is the dominant airline in domestic markets and the only one that has a frequent flyer program (FFP); it faces some competition from two small carriers. Using a unique dataset for Chile, collected by ourselves from airlines websites in 2011 and 2012, we estimate the impact of the dominant airline FFP. For this purpose, we compare for each route the fares between airlines and between weekday trips (that accumulate full miles and are mainly for business purposes) and weekend trips (that accumulate less than full miles and are mainly for leisure purposes). The results show that the differential premium LAN is able to charge for weekday trips due to the FFP is around 35%. Three particularities of the Chilean market help the econometric identification: there is only one hub for all airlines (the capital city of Santiago), there is no business class in domestic flights, and none of the airlines is a low-cost carrier.     

Market power and its determinants in the Chinese airline industry

This paper first measures the degree of Chinese airlines’ market power by using Lerner index, and then investigates its determinants. Our empirical results show that a certain degree of market power exists in the Chinese airline industry. Of the three dominant carriers, Air China exhibits the strongest market power whereas China Eastern Airlines the weakest, with China Southern Airlines being in the middle. Furthermore, the extent of market power varies significantly among regional markets, with China’s northeast region as the strongest, followed by the eastern and western regions, and the central area as the weakest. We also find a hub-premium effect similar to the result found in the US airline market. Our analysis shows that the existence of high-speed rail and low-cost carriers, income level, population size, seasonality, and number of competing airlines are the main determinants of competition in the Chinese airline market.     

Coordinated scheduling models for allied airlines

Recently, as a means of forming global networks and improving operation efficiency, major air carriers have increasingly entered into alliances with other carriers. Fleet routing and flight scheduling are not only important in individual airline operations, but also affect the alliances. The setting of a good flight schedule can not only enhance allied airline operating performance, but can also be a useful reference for alliance decision-making. In this research, we develop several coordinated scheduling models, which will help the allied airlines solve for the most satisfactory fleet routes and timetables under the alliance. We employ network flow techniques to construct the models. The models are formulated as multiple commodity network flow problems which can be solved using a mathematical programming solver. Finally, to evaluate the models, we perform a case study based on real operating data from two Taiwan airlines. The preliminary results are good, showing that the models could be useful for airline alliances.     

Airline energy efficiency measures using the Virtual Frontier Network RAM with weak disposability

In this paper, airline energy efficiency is divided into three stages: the operations stage, the services stage and the sales stage. Greenhouse gas emissions are treated as an undesirable output of the services stage. This new three-stage strategic operating framework is a modification of existing models. A new model, Virtual Frontier Network Range Adjusted Measure with weak disposability, is proposed to evaluate the efficiencies of 22 international airlines, from 2008 to 2012. The results show that the new model can establish more reasonable rankings and confirm new benchmarking airlines and that inclusion in the European Union’s Emissions Trading Scheme has had little influence on the improvement of airline energy efficiency.     

Airline-driven ground delay programs: A benefits assessment

Three decades of research studies in ground delay program (GDP) decision-making, and air traffic flow management in general, have produced several analytical models and decision support tools to design GDPs with minimum delay costs. Most of these models are centralized, i.e., the central authority almost completely decides the GDP design by optimizing certain centralized objectives. In this paper, we assess the benefits of an airline-driven decentralized approach for designing GDPs. The motivation for an airline-driven approach is the ability to incorporate the inherent differences between airlines when prioritizing, and responding to, different GDP designs. Such differences arise from the airlines’ diverse business objectives and operational characteristics. We develop an integrated platform for simulating flight operations during GDPs, an airline recovery module for mimicking the recovery actions of each individual airline under a GDP, and an algorithm for fast solution of the recovery problems to optimality. While some of the individual analytical components of our framework, model and algorithm share certain similarities with those used by previous researchers, to the best of our knowledge, this paper presents the first comprehensive platform for simulating and optimizing airline operations under a GDP and is the most important technological contribution of this paper. Using this framework, we conduct detailed computational experiments based on actual schedule data at three of the busiest airports in the United States. We choose the recently developed Majority Judgment voting and grading method as our airline-driven decentralized approach for GDP design because of the superior theoretical and practical benefits afforded by this approach as shown by multiple recent studies. The results of our evaluation suggest that adopting this airline-driven approach in designing the GDPs consistently and significantly reduces airport-wide delay costs compared to the state-of-the-research centralized approaches. Moreover, the cost reduction benefits of the resultant airline-driven GDP designs are equitably distributed across different airlines.     

航空公司安全管理绩效动态提升机制

为解决航空公司安全管理决策短期化、滞后化问题,有效提升其安全管理水平,在民航安全管理理论系统分析的基础上,深入挖掘安全管理绩效要素及其影响路径,构建了航空公司安全管理绩效系统动力学模型。通过专家访谈法确定了各要素指标间的影响关系及其权重,并运用VENSIM软件对模型进行了仿真,结果表明:当航空公司安全管理绩效达到某种程度后,其提升速率呈减缓趋势,需及时调整安全投入策略;此时安全政策和目标、安全监督检查、安全保障资源和安全沟通可作为未来提升安全管理绩效的最佳干预策略组合,为航空公司的安全管理决策提供科学依据。     

Operational efficiency versus financial mobility in the global airline industry: a data envelopment and Tobit analysis

The events of September 11th, 2001 precipitated an almost unprecedented financial crisis for the world airline industry. However, it is not clear that these events represent a discrete, industry disruption or whether, in fact, airlines were already entering a period of economic challenges that would demand new strategic orientations on their part. This study investigates the structural drivers of operational efficiency as well as the financial posture of airlines on the eve of September 11th.A sample of 38 airlines from North America, Europe, Asia and the Middle East was utilized to investigate whether relative operational efficiency implied superior financial mobility (as defined by Donaldson). Data envelopment analysis was utilized to derive efficiency scores for individual airlines. The underlying structural drivers of efficiency were then investigated. It was found that the traditional framework developed in the literature still provided reasonable explanatory power for realized relative operational efficiency. However, the second stage of the analysis found that relative operational efficiency did not inherently imply superior financial mobility. As such, airlines that had chosen relatively efficient operational strategies found themselves in positions of vulnerability with regard to financial mobility and thus suffered the consequences in the post-September 11th environment.     

Modelling the resilience,friability and costs of an air transport network affected by a large-scale disruptive event

This paper deals with developing a methodology for estimating the resilience, friability, and costs of an air transport network affected by a large-scale disruptive event. The network consists of airports and airspace/air routes between them where airlines operate their flights. Resilience is considered as the ability of the network to neutralize the impacts of disruptive event(s). Friability implies reducing the network’s existing resilience due to removing particular nodes/airports and/or links/air routes, and consequently cancelling the affected airline flights. The costs imply additional expenses imposed on airports, airlines, and air passengers as the potentially most affected actors/stakeholders due to mitigating actions such as delaying, cancelling and rerouting particular affected flights. These actions aim at maintaining both the network’s resilience and safety at the acceptable level under given conditions.Large scale disruptive events, which can compromise the resilience and friability of a given air transport network, include bad weather, failures of particular (crucial) network components, the industrial actions of the air transport staff, natural disasters, terrorist threats/attacks and traffic incidents/accidents.The methodology is applied to the selected real-life case under given conditions. In addition, this methodology could be used for pre-selecting the location of airline hub airport(s), assessing the resilience of planned airline schedules and the prospective consequences, and designing mitigating measures before, during, and in the aftermath of a disruptive event. As such, it could, with slight modifications, be applied to transport networks operated by other transport modes.     

Is it the labor unions’ fault? Dissecting the causes of the impaired technical efficiencies of the legacy carriers in the United States

Data envelopment analysis is used to evaluate the technical efficiencies of a number of major passenger airlines in the United States at transforming their inputs (labor, fuel and fleet-wide seating capacity) into available seat-miles. A tobit regression model is then used to identify the underlying drivers of airline efficiency, as measured by the data envelopment analysis efficiency score. The impact of unionization on airline efficiency is found to be statistically insignificant, controlling for the influences of other hypothesized determinants of airline efficiency: the average age of an airline’s fleet, the average size of its aircraft, its average stage length, the extent to which the airline relies of hubbing within its route structure, the percent of its passenger enplanements that are international, and whether the airline is a legacy carrier. The statistically significant drivers of airline efficiency, at a ten percent level of significance, are average aircraft size, average stage length and the extent to which the airline relies on hubbing and connecting flights within its route structure. The stage length variable is not significant at a five percent level of significance, however. An increase in average aircraft size or in average stage length enhances an airline’s efficiency whereas an increase in hubbing reduces it.     

Airline productivity redefined: An analysis of U.S. and European carriers

Productivity, in terms of net value added per man-year of labor and capital input, provides a more useful yardstick of airline efficiency than the widely used indices representing average unit costs or labor productivity. Large variations in productivity between airlines, in particular between U.S. and European airlines, can be explained almost entirely by differences in level of service, demand patterns and route characteristics. A regression model calibrated on 1975 data for fourteen U.S. and fourteen European scheduled airlines indicates that productivity could be increased by changes in network shape though a more liberal exchange of traffic rights, greater specialization (in particular the limited involvement of scheduled airlines in the very low yield charter market) and consumer choice — by offering higher frequency, multi-city services.     

Hub location in the South-Atlantic airline market: A spatial competition game

The paper analyzes the airlines’ hub location problem through a spatial competition game played in two stages. First, airlines sequentially choose the location of their hub and second, they compete offering direct or connecting services between each city-pair. Different outcomes in the first stage will affect competition in the second, and as a consequence, the market share that airlines can obtain.Given actual demand patterns, results of the model are applied to the South-Atlantic airline market. We study the subgame perfect equilibriums obtained as a result of competition in each city-pair to anticipate where airlines will probably locate their hubs once an “open skies” policy is adopted in this market.