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.     

Relationships between fares, trip length and market competition

This paper analyses equilibrium fares that arise from Collusion, Cournot, Stackelberg, Bertrand and Sequential Price Competition when two profit maximising transport firms produce symmetrically differentiable services and have identical costs. Special focus is placed on how different equilibrium fares are linked to trip length. Higher operator costs and higher demand from the authorities regarding the quality of transport supply result in steeper relationships (larger rate of change) between all fares and travel distance. Also, a higher degree of substitutability between the services will in most cases make these relationships steeper. The competitive situation has less influence on fares, both absolutely and relatively, the longer routes the operators compete on.     

Metropolitan railways: present characteristics and future prospects

Urban bus operation in Chile is totally deregulated. This is the only example in the world where access to the urban bus transport market is totally free, and where the government does not exercise any control over the fares. This policy has been implemented progressively since 1979. Ten years later, it is possible to draw some conclusions from the experience. To summarize these conclusions, one could say that (i) the impact of deregulation has been almost exactly the opposite of what was expected: fares have risen and the diversity of services has been reduced, (ii) the reasons for this discrepancy lie less in the action of a cartel than in the specifics of urban transport supply and (iii) there is probably more to be expected from a refined deregulation policy, taking into account these specifics, than from a drive back to the traditional regulation system.     

Transport deregulation and the economy wide implications of the wheeler‐Gilmour hypothesis

This paper focuses on the effects of deregulation of motor carriers in Australia. It is particularly concerned with the implications of regulatory reform beyond the transport sector and uses a general equilibrium approach to examine the economy wide effects of deregulation. Among other things the paper shows that the effects of deregulation are not evenly distributed across all types of industries. Furthermore it concludes that the magnitude of the effects from deregulation in any given industry is not necessarily correlated with the share of total costs devoted to the purchase of transportation services.

     

Taxicab deregulation: Economic consequences and regulatory choices

The regulation of taxicab services is receiving an increasing amount of attention by city governments. At issue are the questions of whether local regulations should limit the supply of taxicabs and whether the regulations should control taxi fares.Recently, deregulation has become a popular suggestion; however, little empirical or theoretical evidence has existed to indicate the effects of taxi deregulations. This paper discusses these effects within a framework of eight regulatory scenarios involving different price, entry, and industry concentration factors. The analysis provides support for a public brokerage function.The preparation of this paper was supported, in part, by a contract from the Urban Mass Transportation Administration, U.S. Department of Transportation, Washington, DC.     

The analysis of bus costs and revenues by time period

Bus operators serve many markets characterized both spatially and temporally. An objective of these companies is to tailor fares and service provision to these myriad markets. The past 20 years have seen an unprecedented desire by bus companies to analyse costs and revenues at the micro level to permit this tailoring. This was initially on a route‐by‐route basis and later on a time‐of‐day/day‐of‐week (or time period) basis. The methodology was developed in three stages: (1) apportioning methods for allocating costs and revenues to route level were developed in the United Kingdom and the U.S.A. in the period 1968 to 1974; (2) further developments post 1974 were chiefly in the U.S.A. and Australia and concentrated on prediction methods for incremental costs resulting from expanding/contracting service at particular times of day; and (3) there was a resurgence of interest in the U.K. post 1979 with analysis of both allocated and incremental costs and revenues. This assumed great practical interest with deregulation of the industry in 1986.

The paper traces the development of the literature over the period and indicates that costing methodologies have been extensively analysed but revenue methodologies are still in their infancy. On the costing side, two methodologies, one from the U.K. and one from Australia, are available. The paper describes these two techniques and, in comparing them, identifies a trade‐off between predictive accuracy and simplicity of application. The paper concludes that the development of micro‐level analytical techniques has proved to be both practical and desirable. Areas for potential future research are also identified.     

The development of urban bus regulatory policy in Korea reviewed

The urban bus industry in Korea used to be controlled to provide stable transport services and enable operators to secure proper profits, but there were adverse effects within the industry such as inadequate business management and a downward spiral of low quality services resulting from lower fares. The government began easing restrictions on entry, operation, fares, and some conditions and procedures for licensing in the late 1980s, until in 1993, the government published a package of deregulatory measures that were considerably more drastic than those previously seen, such as freely adjusting the number of vehicles within 10%, easing the restrictions and requirements for operators’ employing staff and drivers, and improving the fare system. However, these measures seem to have been introduced too late and too luke‐warmly to encourage new entrants to the industry. Therefore, to gain the desirable effects of deregulation and to secure the development of the urban bus sector, there needs to be provision of a market atmosphere and greater scope for free competition; a positive attitude among operators for efficient business management and new services; and alert observation and monitoring by passengers.     

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.     

Deregulating European aviation — A case study

European international scheduled aviation has been characterised by bans on market entry, price collusion, and capacity sharing. High fares were charged compared to world standards and the fares charged by European charter airlines.In May 1986 new entrants with pricing freedom were permitted on the London-Dublin route which was then the third largest in European scheduled international aviation. Prior to deregulation the route experienced high fare growth. The unrestricted fare ex-London increased 72.6 per cent compared to a Retail Price Index increase of 41.5 per cent. There was a growth in passenger numbers in the years 1980–85 of 2.8 per cent.Since deregulation passenger numbers have risen to 2.3 million compared to 994,000 before deregulation. Fares have declined by an estimated 37 per cent ex-Dublin and 42 per cent ex-London in real terms. There have been four cases of market entry and one of market exit. The estimated share of the new entrants in the second half of 1989 was 28 per cent. The preregulation earnings data of Aer Lingus, the market leader, indicated that protection allowed staff to earn economic rents. A two-tier structure was introduced in response to competition.Remaining barriers to contestability in UK/Ireland aviation include hub airport dominance, ground handling monopolies, and the ability of airlines with routes in both regulated and deregulated markets to engage in geographical price discrimination against airlines with routes in deregulated markets only. A pro-contestability aviation policy in Europe will require measures to prevent the abuse of dominant positions by established airlines over new market entrants and to prevent collusion between established airlines.     

Management objectives and the causes of mass transit deficits

Based on data for the period from 1948 to 1997, exogenous decreases in demand and increases in costs are estimated to have reduced the annual profitability of the Chicago Transit Authority (CTA) by $1 billion. Half of this decline was recouped by reductions in service, increased fares and increased productivity. Even more would have been recouped had the CTA not given away earlier productivity gains during the 1970s. This was during a period when subsidies were increasing rapidly, and seemingly without constraint. When faced with financial challenges, management has preferred to increase fares rather than reduce service levels to the detriment of social welfare.     

Consequences of public ownership and subsidies for mass transit: Evidence from case studies and regression analysis

The trend toward public ownership, public regulation, and public subsidization of the U.S. transit industry has recently come under attack. Many argue that the result has been reduced productivity, increased costs, and very little real benefit. This article examines the impacts of subsidies and public ownership in four large transit systems that cover a range of transit system types and financing arrangements. Evidence from the case studies is compared to the results of both time-series and cross-section regression analysis of operating and financial statistics for large samples of bus systems. Although the case studies and the regressions rely on different datasets and different techniques, they support the same conclusions. Increased subsidies and public ownership have kept down fares and permitted service expansion, but have also encouraged wasteful cost escalation. Thus, transit riders unquestionably have benefited from public takeovers of transit systems and burgeoning subsidies, but not nearly as much as they would have benefited if costs had not skyrocketed at the same time.     

Transport system management in San Francisco: an assessment

The paper reports the results of a transportation corridor study. The emphasis in the study is in transportation system management (TSM) policies although some capital intensive alternatives are also considered.

The results suggest that currently popular TSM policies in U.S.A., even when augmented with capital intensive changes, have only marginal impacts on modal choices. These currently popular policies, high occupancy vehicle priority lanes, improved bus and express bus service, increased feeder bus service and so forth, appear to confer benefits to well to do suburbanites but do not improve the transportation of urban dwellers.

Another interesting result is that if user costs were increased to cover the full costs of transportation the transit fares for low income people would increase ten percent and the increase for urban dwellers would be about 20 percent. Interestingly, there would be no change in bus fares for either group. However, for high income travellers and suburbanites the increase in transit fares would be in excess of 100 percent. Thus, the current fare structure is inequitable making the low income people and the urban dwellers to pay a much larger share of their transportation cost than the often well to do suburbanites.     

Bus policy — Conclusions from a case study

The main policy conclusions from a recent bus study in the new town of Telford in the U.K. are summarised and discussed. The choice of bus routes and their combination into networks is examined. Alternative fares systems are compared and the implications for the fare levels necessary to cover costs are discussed. It is argued that bus services can generally be financed from the fare-box but that, unless services are cut as passenger demand falls, unduly high fares will result and these will unnecessarily drive more passengers away from the buses. Several particular aspects of service marketing are then examined and the paper concludes by discussing the actual organisation of the bus services.     

Policies towards suburban rail services in Britain and the federal republic of Germany — a comparison

This paper compares the major role played by suburban rail (S‐Bahn) systems in West German cities with the much more limited role of rail in the British conurbations. Clearly, the difference owes much to the institutional and financial arrangements in the two countries. In West Germany, large amounts of earmarked funds have been available for rail investment, whilst the Federal government has been willing to shoulder much of the burden of operating subsidies. The Verkehrsverbund has emerged as a highly effective way of coordinating fares and services without direct ownership of any mode of transport. By contrast in Britain funds for rail investment have been much more limited. Progress with integration has been far slower, and is threatened by current government policies regarding both bus deregulation and the abolition of the Metropolitan county councils. Whilst rail is firmly established in German cities, its future in Britain looks bleak.     

Elasticities for taxicab fares and service availability

This study utilizes a unique dataset from New York City to examine the effects of taxi fare increases on trip demand and the availability of taxi service. The elasticity of trip demand with respect to fares is estimated to be –0.22; the elasticity of service availability with respect to the taxi fare is 0.28; and the elasticity of service availability with respect to total supply of service is near 1.0. These results have important implications for taxi regulatory decisions. First, fare increases do substantially increase industry revenues but at a lesser rate than the percentage increase in the fare. The implication for policy-makers is that fare elasticities must be carefully considered to obtain desired improvements in drivers' earnings. Second, service availability -- an important aspect of service quality that is generally overlooked during fare policy debates -- should be a central consideration in fare setting, given the considerable impact of fares on availability. Finally, where the supply of cabs needs to be expanded, the number of cabs can be significantly increased without harming the revenue stream of existing operators. This finding alleviates a major industry objection to issuing additional taxicab licenses.     

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.     

The effects of public transport subsidies on demand and supply

The results of statistical analysis of cross-sectional and longitudinal public transport operating statistics from 16 countries aimed at identifying the relationships between subsidy, on the one hand, and fares, service, passengers, unit costs and output per employee on the other, are reported. This study updates earlier work carried out in 1979 for the European Conference of Ministers of Transport, and uses a greatly expanded data set covering 117 individual cities in 11 countries, and aggregate national data from 16 countries, over the period 1965–1982. The statistical correlations identified between year-on-year changes in subsidy and changes in a wide range of operating indicators show that the subsidy has reduced fares and increased the amount of service operated, and each extra 1% of cost covered by subsidy probably attracts a 0.2 to 0.4% increase in passengers. However, the study also finds highly significant relationships between increases in subsidy, on the one hand, and increases in unit costs and wages and reductions in output per employee, on the other. It seems that as much as one half of subsidy has been consumed by higher costs and time-lagged regressions suggest that, in part, the increases in unit cost tend to follow subsidy rather than precede it, giving some cause for concern that the uses of subsidy are not being controlled as tightly as they might.     

The impact of advance purchase deadlines on airline consumers’ search and purchase behaviors

Airlines frequently use advance purchase ticket deadlines to segment consumers. Few empirical studies have investigated how individuals respond to advance purchase deadlines and price uncertainties induced by these deadlines. We model the number of searches (and purchases) for specific search and departure dates using an instrumental variable approach that corrects for price endogeneity. Results show that search and purchase behaviors vary by search day of week, days from departure, lowest offered fares, variation in lowest offered fares across competitors, and market distance. After controlling for the presence of web bots, we find that the number of consumer searches increases just prior to an advance purchase deadline. This increase can be explained by consumers switching their desired departure dates by one or two days to avoid higher fares that occur immediately after an advance purchase deadline has passed. This reallocation of demand has significant practical implications for the airline industry because the majority of revenue management and scheduling decision support systems currently do not incorporate these behaviors.     

Distribution of the transit tax burden in five U.S. metropolitan areas

As transit subsidies increased twelve-fold in the United States between 1970 and 1980, metropolitan areas responded in very different ways to the challenge of financing burgeoning transit costs. The variety of approaches to transit finance has led to variation in the income-redistributive impacts of taxation. This paper reports on the results of disaggregate analysis of transit tax incidence in Chicago, Portland, northern New Jersey, San Antonio, and Phoenix. In cases where alternative tax shifting assumptions can be made, a range of tax burden distributions is calculated. Causes of the variation in redistributive impact are discussed. The analysis concludes by comparing the regressivity of financing transit through higher fares with the regressivity of taxes needed to support subsidies.     

The operation of Swedish motor-vehicle inspections: efficiency and some problems concerning regulation

Efficiency in the operation of the Swedish motor-vehicle inspection monopoly was examined by analyzing data on all decision-making units related to production of inspection services during 1993. In addition, theoretically based arguments concerning some regulation problems are discussed. The results imply a fairly high level of technical efficiency, which might be explained by the extensive practice of yardstick-competition in the industry. The findings, based on a best-practice approach, do not indicate strong empirical evidence in support of a deregulation of the industry. However, the regulation problems discussed may provide motives for deregulation.