A canonical correlation analysis of carrier financial strategy: The case of airline deregulation

This study investigates U.S. airline managements' perception of deregulation's impact upon the industry's financial risk by analyzing the airlines' risk management behavior. Specifically, canonical correlation analysis is utilized to ascertain key asset-liability/equity interrelationships and to identify changes in airline risk management as indicated by changes in financial structure. A control sample of nonregulated firms in various service industries is used to separate the effects of general economic conditions from those of deregulation. The results indicate that the airline industry adjusted its financial structure to reduce the industry's exposure to risk as the industry became deregulated. The industry decreased its financial leverage through greater use of equity vis-à-vis debt to finance its long-term assets while simultaneously increasing its liquidity. Definitive conclusions concerning the industry's perception of financial risk after deregulation had been in place a few years are precluded by two external events which occurred in 1978—the requirement that leases be capitalized on the balance sheet and the rapid fuel price increases spurred by the Iran-Iraq war. However, the results clearly show the industry perceived greater financial risk during the early years of de facto CAB deregulation.     

Contract Design,Financing Arrangements and Public Ownership—An Assessment of the US Airport Governance Model

Abstract

US airports negotiate legally binding contracts with airlines and finance large investment projects with revenue bonds. Applying insights from transaction cost economics, we argue that the observed variation in contractual and financing arrangements at US airports corresponds to the parties' needs for safeguarding and coordination. The case evidence presented reveals that public owners set the framework for private investments and contracting. We suggest that airline contracts and capital market control result in comparative efficient investments and act as a check on the cost inefficiency typically linked to public ownership.     

Airline industry deregulation and changes in systematic risk

Deregulation of U.S. Airline Industry may have lowered systematic risk because pricing freedom and route flexibility improved airline management reaction to various economic conditions. Reduced systematic risk offers lower cost of equity capital for the industry as a whole as well as for individual carriers. Previous research has had mixed results in identifying a relationship between deregulation and airline industry cost of capital. This study plots airline industry Beta coefficients across the years 1963 to 1987 and clears up previously conflicting research findings. Beta coefficients had been falling since the fuel crisis of 1974 and continued to fall through 1980. Fluctuations since deregulation have been relatively minor and systematic risk has leveled off at a significantly lower value than before deregulation. Studies which concentrate on the fluctuation in Beta since 1978 are dependent on the exact time period of analysis, and their conclusions that deregulation raised or lowered systematic risk are likewise suspect. A broader view of systematic risk changes in the deregulatory era shows airline Betas peaking from 1971 to 1973 and a gradual decrease as deregulation was being discussed, implemented, and legally mandated. This gradual decline from 1974 to 1980 may be attributed to such factors as fuel prices, interest rates, general inflation as well as deregulation. In any case systematic risk of the U.S. Airline industry has been lower since deregulation than in decades before.     

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.

     

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.     

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.     

Anomaly detection via a Gaussian Mixture Model for flight operation and safety monitoring

Safety is key to civil aviation. To further improve its already respectable safety records, the airline industry is transitioning towards a proactive approach which anticipates and mitigates risks before incidents occur. This approach requires continuous monitoring and analysis of flight operations; however, modern aircraft systems have become increasingly complex to a degree that traditional analytical methods have reached their limits – the current methods in use can only detect ‘hazardous’ behaviors on a pre-defined list; they will miss important risks that are unlisted or unknown. This paper presents a novel approach to apply data mining in flight data analysis allowing airline safety experts to identify latent risks from daily operations without specifying what to look for in advance. In this approach, we apply a Gaussian Mixture Model (GMM) based clustering to digital flight data in order to detect flights with unusual data patterns. These flights may indicate an increased level of risks under the assumption that normal flights share common patterns, while anomalies do not. Safety experts can then review these flights in detail to identify risks, if any. Compared with other data-driven methods to monitor flight operations, this approach, referred to as ClusterAD-DataSample, can (1) better establish the norm by automatically recognizing multiple typical patterns of flight operations, and (2) pinpoint which part of a detected flight is abnormal. Evaluation of ClusterAD-DataSample was performed on two sets of A320 flight data of real-world airline operations; results showed that ClusterAD-DataSample was able to detect abnormal flights with elevated risks, which make it a promising tool for airline operators to identify early signs of safety degradation even if the criteria are unknown a priori.     

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.     

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.     

Performance assessment of transport services with the ERM-NDEA model: evidence from a domestic airline in Taiwan

Abstract

This paper estimates comprehensive operational performance measures for transport services. A network efficiency approach is used to analyze the production efficiency, service efficiency, and operational efficiency in a unified framework to reflect the transportation service characteristics of airline operations. We show how a modified version of the network data envelopment analysis model can be utilized for evaluating the performance of air route operations. This study considers 15 air routes operated by a domestic airline in Taiwan to highlight the value of the approach. The results of the analysis show the inputs and consumed outputs leading to production inefficiency and service inefficiency respectively as well as the magnitudes of excesses and shortfalls.     

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。     

An Institutional Analysis of Coordination in Liberalized Port-related Railway Chains: An Application to the Port of Rotterdam

Abstract

The European railway market has gone through a period of liberalization over the last two decades. The liberalization of the railway market has also affected port-related railway transport. Efficient port-related transport chains are key in the competition among ports, however providing this efficiency is to a large extent a coordination challenge. Many forms of coordination are needed to ensure that the railway chain operates efficiently, including the bundling of cargo, and good organization between railway companies, terminal operators and the infrastructure managers to realize an efficient use of assets. From the literature, it appears that less attention has been paid to the economic organization of port-related railway transport in general, and specifically in the new liberalized institutional environment. The goal of this paper is to come up with a framework to better understand the issue of coordination in port-related railway chains in a liberalized institutional environment. This paper presents a conceptual framework rooted in Transaction Cost Economics (TCE). Based on an in-depth study into coordination in liberalized container railway market at the Port of Rotterdam, empirical illustrations are used to adjust the TCE approach toward a dynamic model influenced by Douglas North's theory on economic and institutional change. Empirics from the port of Rotterdam show that new players have entered the railway market and their role has changed. This paper shows that coordination of railway operations has become more complex after the regime change. From a port perspective, liberalization does not lead to an optimal allocation of resources in a process that is highly operationally interdependent. In the liberalized environment, coordination arrangements are necessary to enable efficient coordination of railway operations in Rotterdam.     

Optimal scheduling of public transport fleet at network level

This paper deals with the development of a strategic approach for optimizing the operation of public transport system that considers both user's objective and operator's objective. Passengers of public transport are assumed to seek a minimum wait time to conduct the trips, while on the other hand, operators are concerned with the efficient operation such as minimum fleet size. The average minimum wait time is to be achieved by creating an optimal despatching policy for each vehicle from the terminal. As for efficient operation the utilisation of vehicle should be maximised by having a minimum number of vehicles in operation. User's and operator's objectives are optimized within certain operational constraints such as vehicle capacity to maintain acceptable level of service. The i‐model is contructed in a bi‐level programming form in which the user's objective is minimized by dynamic programming and the operator's objective is minimized by various routing strategies. Furthermore, an algorithm and a contrived example are developed to solve and see the performance of the approach.     

Simulation-based assessment methodology to improve ground service operations at a hub airport

ABSTRACT

Airport terminals are dynamic environments and security/passport services generally constitute costly bottlenecks in terminals. Increases in the number of airline passengers compels airport terminals to provide more efficient services to its customers under space and resource limitations. This study examines the level of service of passenger processes at Istanbul Atatürk Airport by constructing a comprehensive simulation model. It focuses mainly on passport control services and passenger transfer security services because of the airport's hub status and the strategy of Turkish Airlines. The increasing number of transfer passengers may cause disruptions in departure flight schedules due to slow passenger processes. After validating the model, we investigate the consequences of three main alternative solutions, including 17 sub-scenarios, to capture target quality levels. Finally, we provide the results for each scenario to investigate the optimum allocation of resources to terminal operations.     

Effects of regulation-driven green innovations on short sea shipping's environmental and economic performance

Despite its pivotal role in European trade, today’s short sea shipping (SSS) industry faces the dual challenge of lessening its environmental footprint while improving its economic performance. To reduce the pollution caused by their operations, SSS companies are required to comply with increasingly stringent environmental regulations enacted by global and regional authorities such as the European Union and the International Maritime Organization. However, the companies tend to regard those regulations as imposing an additional burden of cost that compromises their capacity to enhance their economic performance. This paper examines the impact of external institutional driver namely regulatory pressure on the adoption of green innovations in SSS and in turn, the impact of those innovations on the environmental and economic performance of SSS companies. To investigate the hypothesised relationships of those constructs, a structural equation model was developed and tested with data from a survey conducted amongst 101 short sea shipping companies headquartered in Europe. As detailed in the paper, the analysis revealed that regulatory pressure has generated green innovations that have enhanced the environmental and economic performance of European SSS companies and, as a result, led to a win–win situation for all parties involved. The paper discusses what those findings imply for SSS firm managers and policymakers who seek to improve the environmental or economic performance of Europe’s SSS industry.     

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.     

Disruption Management of an Inequality-Based Multi-Fleet Airline Schedule by a Multi-Objective Genetic Algorithm

Abstract

This paper presents a novel application of a Method of Inequality-based Multi-objective Genetic Algorithm (MMGA) to generate an efficient time-effective multi-fleet aircraft routing algorithm in response to the schedule disruption of short-haul flights. It attempts to optimize objective functions involving ground turn-around times, flight connections, flight swaps, total flight delay time and a 30-minute maximum delay time of original schedules. The MMGA approach, which combines a traditional Genetic Algorithm (GA) with a multi-objective optimization method, can address multiple objectives at the same time, then explore the optimal solution. The airline schedule disruption management problem is traditionally solved by Operations Research (OR) techniques that always require a precise mathematical model. However, airline operations involve too many factors that must be considered dynamically, making a precise mathematical model difficult to define. Experimental results based on a real airline flight schedule demonstrate that the proposed method, Multi-objective Optimization Airline Disruption Management by GA, can recover the perturbation efficiently within a very short time. Our results further demonstrate that the application can yield high quality solutions quickly and, consequently, has potential to be employed as a real-time decision support tool for practical complex airline operations.     

ICT Adoption among Logistics Companies in ASEAN Countries

In this era of globalization, adoption of information and communication technology (ICT) is one of the critical determinants of logistics companies' competitiveness and growth. This is especially so for the ASEAN countries as they pursue the vision of regional economic development and integration. Existing empirical studies on ICT adoption by logistics companies in developing countries are, however, scarce and have limited theoretical support and so far no comparative analysis of ICT adoption among ASEAN logistics companies and its determinants has been undertaken. This paper investigates the level of ICT adoption among ASEAN logistics companies and also develops an investment-based model to explain it. The model is evaluated with logistic regression using firm-level data collected from interviews with a sample of ASEAN logistics companies. The study finds that ICT adoption level varies significantly among the ASEAN countries and provides an empirical support for an investment-based view of ICT adoption. It also finds no further evidence for the relevance of the institutional theory to the ASEAN logistics industry. These findings have important strategic and policy implications for the ASEAN policy-makers and logistics industry.     

Airline ambidextrous competition under an emissions trading scheme – A reference-dependent behavioral perspective

This study presents a reference-dependent Hotelling model for analyzing airline competition in pricing and green transportation investment, as well as the resulting financial performance under the European Union emission trading scheme. One feature of the proposed methodology is that it embeds psychological benefits/costs of consumers to characterize consumer attitudes to the increases in airline fare adjustments and improvements in green transportation. This study then investigates the equilibrium solutions for airfare adjustment and green transportation investment margins in different scenarios. The analytical results reveal specific operational conditions under which a cost-efficient airline can gain supreme competitive advantage by increasing both airfare and green transportation investment margins beyond the increases made by competitors under the emission trading scheme, whereas certain specific conditions may favor a cost leadership strategy. Conversely, a cost-inefficient airline can compete with a cost-efficient airline in both market share and profitability using the green transportation investment-differentiation strategy, particularly when consumers perceive the airfare difference as equaling the increased psychological benefit induced by the airline’s green effort.     

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.