Predicting failure in the airline industry with financial models

This paper reports on the development and validation of a financial model useful for predicting failure in the airline industry. A large set of variables were combined into a smaller number of independent factors based on which the model was developed. The model predicts failure much better and earlier than evidence of failure described by corporate auditors in audit opinions.     

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.     

Wildlife strike cost revelation in the US domestic airline industry

Since the Federal Aviation Administration (FAA) last revisited its wildlife strike disclosure policy in 2009, the American domestic airline industry has undergone a significant increase in concentration. We analyze how the aforementioned shift in market structure has impacted the voluntary repair cost disclosure of US airlines following a damaging wildlife strike event. We also investigate the related relationship between profitability and disclosure using an instrumental variables strategy. Lastly, we examine the interaction between competition and profits. Our results show the probability of large American airlines disclosing direct repair costs after a wildlife strike event are linked to market competition and profitability. These findings could directly inform policies managing the economic burden of wildlife strikes, most importantly, the current voluntary disclosure policy.     

Code sharing,joint fares,and competition in the regional airline industry

In the wake of airline deregulation, virtually all large jet carriers have entered into cooperative marketing agreements that involve shared designator codes and joint fares with commuter airlines. This paper examines the development of these agreements, the role they play in the competitive strategies of major and commuter airlines. and the implications of these agreements for the structure of the airline industry and for service to travelers to and from small communities.     

Air carrier activity at major hub airports and changing interline practices in the United States' airline industry

This paper presents data on air carrier activity at major hub airports and documents changing interline practices among carriers. Both developments have implications for understanding the evolving structure of the airline industry, as well as the nature of competition in the industry.     

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.     

Assessment of product debundling trends in the US airline industry: Customer service and public policy implications

This paper reviews product debundling trends that have occurred in the US airline industry. Multiple sources of ancillary fees related to ticketing refunds and exchanges, checked baggage, on-board pets, preferred and/or advanced seating assignments, frequent flyer ticket redemptions, and day of departure standby policies are reviewed. Despite the fact that both low cost and network carriers stress the importance of future ancillary fees in their investor reports, our assessment suggests that these fees will be more broadly adopted by low cost carriers. We anticipate that many network carriers will eliminate ancillary fees, particularly as they begin to recognize how these fees can impact other system performance objectives such as minimizing the number of misconnecting passengers. We estimate that the debundling phenomenon has diluted revenues to the US Airport and Airways Trust Fund by at least 5%.     

推敲中国廉价航空

廉价航空效应 所谓廉价航空,机票价格便宜是它突出的标志.但这不是简单地通过机票打折或盲目压低价格来实现的,而是航空公司在各个环节上大幅度地降低成本,并通过企业团队精神获取低廉价格.围绕着降低成本而形成的航空公司的市场定位、发展战略、一整套经营策略、用人机制、企业管理机制、企业文化等等,构成了现在的"廉价航空模式".它产生了轰动世界的效应.     

Environmental charges in airline markets

Over the last two decades many airline markets have been deregulated, resulting in increased competition and use of different types of networks. At the same time there has been an intense discussion on environmental taxation of airline traffic. It is likely that an optimal environmental charge and the effects of a charge differ between different types of aviation markets. In this paper, we derive optimal flight (environmental) charges for different types of airline markets. The first type of market is a multiproduct monopoly airline operating either a point-to-point network or a hub-and-spoke network. The optimal charge is shown to be similar in construction to an optimal charge for a monopolist. We also compare the environmental impact of the two types of networks. Given no differences in marginal damages between airports we find that an airline will always choose the network with the highest environmental damages. The second type of market we investigate is a multiproduct duopoly, where two airlines compete in both passengers and flights. The formulation of the optimal charge is similar to the optimal charge of a single product oligopoly. However, we also show that it is, because of strategic effects, difficult to determine the effects of the charge on the number of flights.     

A three-stage least squares approach to the analysis of airline strategies for aircraft size and airline frequency on the north Atlantic: an airline case study

In response to increasing demand, airlines may increase capacity by increasing the frequency of flights or they may choose to increase aircraft size. This may yield operating cost economies. If the airports they operate from are capacity constrained, they will be limited in the extent that they can change frequency which will limit their ability to compete with the number of frequencies offered. This article focuses on this trade-off and pays particular attention to the practices of a specific airline. Conclusions are offered on the impact of inter alia competition, changes in aircraft technology, 9/11 and the impact of slot constraints. It appears that changes in size are more important than frequency, which is consistent with the presence of slot constraints and there is a significant impact of competition. As the concentration of carriers increases, so aircraft size falls. 9/11 also has a significant impact on traffic whereas the introduction of the Boeing 777, as an illustration of a change in technology, does not.     

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 role of subsidy policies in modernizing the structure of the bus transit industry

Full reliance on conventional forms of bus transit for peak hour needs reduces industry productivity and creates major new subsidy requirements. Restructuring of transit is needed to enable paratransit integration and other innovations than can improve efficiency. This paper discusses the industry's long-term neglect of efficiency and describes subsidy policies that would promote necessary changes.     

The environmental effects of airline carbon emissions taxation in the US

This study investigates how air traffic emissions taxes may impact carbon emissions in the US. The magnitude of emissions savings in the US domestic airline industry that would result from lower demand for air travel as taxes are levied and air fares increase is estimated. At the same time, the air-automobile substitution effect is considered and it is argued that some air travelers may divert to automobiles, thus increasing automobile carbon emissions. Both the analysis of the aggregate US domestic airline industry and the study of a sample of US domestic route markets indicate that potentially sizeable increases in automobile traffic and related emissions may substantially reduce the environmental benefits of air travel carbon emissions taxes. In some instances, carbon emissions may even increase in short-haul markets. Sensitivity analyses are performed to demonstrate the robustness of these findings.     

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 graph-theoretic method to quantify the airline route authority

A U.S. certificated passenger airline must be authorized by the Civil Aeronautics Board before it can schedule a route to serve a set of cities. The route authority is described in a number of legal statements on a Route Certificate, which specifies the routing restrictions by which the airline must abide in offering the service. For cost considerations, an airline is often interested in the shortest flight-time routes between city pairs. This paper introduces a graph-theoretic method to quantify the legal statements in a Certificate. Through straightforward matrix operations, all the authorized nonstop and multistop routes, including the shortest time routes, can be generated. The method is a convenient tool to help an airline to generate alternative network routes as demonstrated by a case study of American Airlines.     

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.     

Urban mobility in the developing world

Mobility and accessibility are declining rapidly in most of the developing world. The issues that affect levels of mobility and possibilities for its improvement are varied. They include the rapid pace of motorization, conditions of local demand that far exceed the capacity of facilities, the incompatibility of urban structure with increased motorization, a stronger transport–land use relationship than in developed cities, lack of adequate road maintenance and limited agreement among responsible officials as to appropriate forms of approach to the problem. The rapid rise of motorization presents the question: At what level will it begin to attenuate for given economic and regulatory conditions? Analysts have taken various approaches to this problem, but so far the results are not encouraging. Developing cities have shown significant leadership in vehicle use restrictions, new technologies, privatization, transit management, transit service innovation, transportation pricing and other actions. Only a few, however, have made important strides toward solving the problem. Developing cities have lessons to learn from developed cities as regards roles of new technologies, forms of institutional management and the long term consequences of different de facto policies toward the automobile. These experiences, however, especially in the last category, need to be interpreted very carefully in order to provide useful guidance to cities with, for he most part, entirely different historical experiences in transportation. Continued progress in meeting the needs of the mobility problem in developing cities will focus on: (a) highway building, hopefully used as an opportunity to rationalize access, (b) public transport management improvements, (c) pricing improvements, (d) traffic management, and (e) possibly an emphasis on rail rapid transit based on new revenue techniques.     

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.