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Book part
Publication date: 1 January 2012

Kevin E. Henrickson and John Scott

The past several years have seen dramatic increases in oil prices, which have adversely impacted airlines, with the average price of jet fuel increasing from $1.34 per gallon…

Abstract

The past several years have seen dramatic increases in oil prices, which have adversely impacted airlines, with the average price of jet fuel increasing from $1.34 per gallon between 1995 and 2005 to $2.81 per gallon between 2006 and 2009. As a partial response to these increases in costs, many airlines have introduced fees for services that were previously provided to their customers free of charge. One such charge is a fee on checked baggage, which most airlines introduced in 2008. These charges have been successful in increasing airline revenues, so successful that many airlines have increased their fees multiple times over the past two years. Baggage fees have also enabled airlines to avoid dramatic increases in their airfares, which may result in significantly fewer customers, as these additional fees generate revenues, but since they are not collected when passengers book their tickets, the cost of air travel on these airlines appears lower than it actually is. The most notable exception to this pattern of charging baggage fees is Southwest Airlines, which has launched a “Bags Fly Free” advertising campaign in an attempt to differentiate their product from that of fee charging airlines. In this chapter, we use a spatial autoregressive model to analyze what impact the increase in fuel costs, and the introduction of baggage fees have had on ticket prices. Our results suggest that increases in jet fuel prices are passed along to travelers in the form of higher ticket prices but that baggage fees actually reduce ticket prices, as airlines may substitute baggage fee revenue for ticket revenue to become more competitive on their airfare. We also find that Southwest Airlines has increased their ticket prices on routes in which they compete with fee charging firms, leveraging their “Bags Fly Free” product differentiation to increase their revenues.

Details

Pricing Behavior and Non-Price Characteristics in the Airline Industry
Type: Book
ISBN: 978-1-78052-469-6

Book part
Publication date: 6 August 2014

John Bitzan, Alice Kones and James Peoples

This chapter uses airline data on fares, traffic, and flight characteristics to estimate a series of fare equations for international flights. The results are used to examine the…

Abstract

This chapter uses airline data on fares, traffic, and flight characteristics to estimate a series of fare equations for international flights. The results are used to examine the role of international competition as a determinant of fares along international flights originating or departing from the United States. Findings suggest that actual and potential competition are important determinants of international airfares. We interpret these results as indicating that pricing behavior along US–international routes is consistent with the theory of imperfect contestability.

Details

The Economics of International Airline Transport
Type: Book
ISBN: 978-1-78350-639-2

Keywords

Book part
Publication date: 14 December 2018

Hangjun Yang, Qiong Zhang and Qiang Wang

In this chapter, we will review the history, deregulation, policy reforms, and airline consolidations and mergers of the Chinese airline industry. The measurement of airline…

Abstract

In this chapter, we will review the history, deregulation, policy reforms, and airline consolidations and mergers of the Chinese airline industry. The measurement of airline competition in China’s domestic market will also be discussed. Although air deregulation is still ongoing, the Chinese airline industry has become a market-driven business subject to some mild regulations. Then, we will review the impressive development of the high-speed rail (HSR) network in China and its effects on the domestic civil aviation market. In general, previous studies have found that the introduction of HSR services has a significant negative impact on airfare and air travel demand in China. The rapidly expanding network of HSR has important policy implications for Chinese airlines.

Book part
Publication date: 12 July 2006

Henry G. Iroegbu

This article assessed the effects of airfares and foreign exchange rates on Global Tourism demand. It identified three categories from the assessment – The Market Segment Effect;…

Abstract

This article assessed the effects of airfares and foreign exchange rates on Global Tourism demand. It identified three categories from the assessment – The Market Segment Effect; The Substitution Effect; and The Facilitation Effect. The tourism literature is rich with vast studies on the effects of various components of tourism prices on international tourism, but lacking in comprehensive categorization of the identified effects. Such assessment would enable tourism destination planners and service providers to be able to focus on identified specific issues and finding their pertinent solutions. It has been determined that while there might be identified profound effects, their solutions are not applicable to all tourism destinations or services.

Details

Advances in Hospitality and Leisure
Type: Book
ISBN: 978-1-84950-396-9

Book part
Publication date: 14 December 2018

Colin C. H. Law, Yahua Zhang and Anming Zhang

This chapter reviews the history of regulation and deregulation in international air transport and discusses the positive impacts of deregulation and open skies on the tourism…

Abstract

This chapter reviews the history of regulation and deregulation in international air transport and discusses the positive impacts of deregulation and open skies on the tourism sector in the Asia Pacific region. The Hong Kong–Bangkok market was examined, which shows that the granting of the fifth freedom rights has given the two places sufficient air service provisions to build tourism. Future reforms in air transport such as relaxing ownership restrictions and expanding air freedoms rights are explored.

Book part
Publication date: 31 May 2016

Mikio Takebayashi

This chapter examines the airline performance effect arising from collaboration between airlines and high speed railway (HSR). The analysis presents scenario simulations using a…

Abstract

This chapter examines the airline performance effect arising from collaboration between airlines and high speed railway (HSR). The analysis presents scenario simulations using a bi-level model, which takes into account the effect of competition among airlines and HSR. Using real data, we examine the Japanese domestic market and the Japan-based international market: the markets consist of Tokyo Metropolitan Area, Osaka Metropolitan Area, Seoul/Korea, Frankfurt/Germany, Paris/France, London/United Kingdom, and Los Angeles/United States. Analysis of the domestic market assumes airlines and HSR compete against each other, and analysis of the international market assumes airlines only compete with each other. Initially, we conduct performance analysis using a simulation that mimics the current relationship between airlines and HSR. Then we present three scenarios for different combinations of collaboration between airline and HSR based on airline alliances. The results from this exercise are then used to examine the impact of the collaboration on the profits of airlines and HSR, passenger’s utility, and the network design of airlines. Last, we show the potential benefit to airlines – profitability, market share, and demand growth – from the airline-HSR collaboration. Our model shows that in Japan: (1) Airlines can improve their profitability in international operations by the collaboration with HSR when airlines set their hubs so they can connect to HSR; (2) The airline which has a lower unit operating cost than rivals and sets its hubs to connect to HSR can improve its joint profit with HSR through collaboration; (3) Airlines that don’t operate domestic flights and don’t set their hubs to connect to HSR encourage increased fare competition by coordinating with HSR, but their profit decreases. Whether these results are generalizable to other regions should be the subject of future study.

Details

Airline Efficiency
Type: Book
ISBN: 978-1-78560-940-4

Keywords

Book part
Publication date: 1 January 2012

Volodymyr Bilotkach and Nicholas G. Rupp

This study traces the evolution of offered airfares on 50 busy routes on the US domestic market. Our approach differs from that in the literature in the following ways. First, we…

Abstract

This study traces the evolution of offered airfares on 50 busy routes on the US domestic market. Our approach differs from that in the literature in the following ways. First, we trace the lowest offered fares for specific round-trip itineraries, acknowledging both that many trips involve return travel and that the round-trip airfare is often not equal to the sum of the two one-way fares. Many previous studies (e.g., Escobari, 2009; Escobari & Gan, 2007) either looked at fare quotes for specific one-way flights or examined the lowest round-trip quote available. Second, our sample of half of the top 100 domestic routes includes itineraries from markets with varying number of competitors as well as from markets with and without the presence of low-cost carriers (LCCs). Third, we have collected fare quotes simultaneously from three leading online travel agents. Thus, our research design allows us to see whether any systematic airfare differences exist across the different online distributors of travel services.

Details

Pricing Behavior and Non-Price Characteristics in the Airline Industry
Type: Book
ISBN: 978-1-78052-469-6

Book part
Publication date: 1 January 2012

Christian Hofer

Few industries may be better suited to study the effects of financial distress on managerial decision making than the airline industry. Economic recessions, natural catastrophes…

Abstract

Few industries may be better suited to study the effects of financial distress on managerial decision making than the airline industry. Economic recessions, natural catastrophes, and terrorist attacks are just some of the factors that frequently take a particularly heavy toll on the airline industry. Thus, coping with and overcoming financial distress is a critical aspect of airline management.

Details

Pricing Behavior and Non-Price Characteristics in the Airline Industry
Type: Book
ISBN: 978-1-78052-469-6

Book part
Publication date: 31 May 2016

Jia Yan, Xiaowen Fu, Tae Hoon Oum and Kun Wang

This chapter reviews the key results obtained in previous studies of airline mergers. It is found that the effect of mergers on airfares is dependent on the network configurations…

Abstract

This chapter reviews the key results obtained in previous studies of airline mergers. It is found that the effect of mergers on airfares is dependent on the network configurations of merging airlines. Fare increases are frequently observed on overlapped routes. However, if the networks of two merging airlines are complementary, the expanded network after the merger leads to cost savings, increase in travel options, and improvement in service quality. Therefore, in a deregulated market, with few entry barriers, relaxing merger regulations is likely to improve welfare. However, most welfare evaluations do not incorporate quality changes or dynamic competition effects. Empirical investigations are primarily ex post analysis of mergers that have already passed antitrust reviews. The relationship between market concentration and welfare might be nonlinear and market specific. Therefore, airline mergers and alliances should be reviewed case by case. Methodological improvements are needed in future studies to control for the effects of complicating factors inherent in ex post evaluations.

Details

Airline Efficiency
Type: Book
ISBN: 978-1-78560-940-4

Keywords

Book part
Publication date: 6 August 2014

Volodymyr Bilotkach and Nicholas G. Rupp

Platforms in two-sided markets are known to provide subsidies to either buyers or sellers, in order to take advantage of cross-group externalities inherent in such industries…

Abstract

Platforms in two-sided markets are known to provide subsidies to either buyers or sellers, in order to take advantage of cross-group externalities inherent in such industries. Online travel agents can be thought of as platforms facilitating trade between passengers and travel service providers (airlines). This chapter evaluates the effects of a buyer subsidy provided by one major US online travel agent – a low-price guarantee offered by Orbitz. We find evidence consistent with increased airline participation with this travel agent upon implementation of the low-price guarantee policy. Our results also confirm the theoretical claims that most-favored customer low-price guarantee policies are procompetitive.

Details

The Economics of International Airline Transport
Type: Book
ISBN: 978-1-78350-639-2

Keywords

1 – 10 of 137