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A substantial part of airports’ revenues relates to charges covering the costs of services supplied by the airport. Charges are imposed on carriers, which in turn pass them or a percentage of them, on to passengers. In the present chapter, special attention is given to regional airports characterized by low traffic volumes, enabling only one or a few carriers to serve each destination. A classic economic model is presented to analyze how the pass-on rate depends on supply and demand characteristics and market structure. Some illustrative examples assuming combinations of common specifications for market characteristics are also presented, showing pass-on rates ranging from 50% to more than 100%. Consequently, market structure and characteristics of carriers and passengers are decisive for how passengers experience changes in airport charges. The differences between the optimal charge from the perspectives of the airport and the welfare of society are specifically addressed. It is demonstrated that knowledge of the pass-on rate in the monopoly cases may be sufficient to infer how the mark-up will be affected by a change in marginal costs. Consequently, the understanding of the pass-on rate is relevant for airport owners and for decision-makers when considering the welfare of passengers and other politically stated goals.

Airline travel is composed of business and nonbusiness travelers, each with different preferences that give rise to differences in demand elasticities and substitution not only across airlines but also airports. In this study, we develop and estimate a model of airline wherein consumers choose which airports and airline to use that allows for unobserved differences between travelers (e.g., business and nonbusiness travelers). The results point to the role that airports themselves play in the ultimate selection of a flight, and that there are strong interactive effects between the airlines’ networks and the consumers’ preferences across airports.

With the liberalization of air transport and the enlargement of air traffic, airports face insistent requests from airlines to perform and improve both service quality and cost efficiency. As a result, airport ownership, governance, and regulations are debated and sometimes have already been changed. Airport pricing under different governance structure is a central issue in this context.

This chapter estimates the demand for flights in an international air travel market using a unique dataset with detailed information not only on flight choices but also on contemporaneous prices and characteristics of all the alternative non-booked flights. The estimation strategy employs a simple discrete choice random utility model that we use to analyze how choices and its response to prices depend on the departing airport, the identity of the carrier, and the departure date and time. The results show that a 10% increase in prices in a 100-seat aircraft throughout a 100-period selling season decreases quantity demanded by 7.7 seats. We also find that the quantity demanded is more responsive to prices for Delta and American, during morning and evening flights and that the response to prices changes significantly over different departure dates.

This chapter reviews three main issues in the interactions between air transport and high-speed rail (HSR) in China, namely the interaction between low-cost carriers (LCCs) and HSR, HSR speed effect on airlines, and airline–HSR integration. Studies on these three aspects of airline–HSR interactions have yet been well reviewed, and our chapter aims to fill in this gap. In this chapter, we comprehensively survey literature on the topics, especially studies on Chinese markets that have recently witnessed major HSR developments (and have planned further large-scale HSR expansion in the coming years). Our review shows that, first, compared to full-service carriers, LCCs face fiercer competition from HSR. However, the expansion of HSR network in China can be better coordinated with LCC development. Second, HSR speed exerts two countervailing effects on airline demand and price (the “travel-time” effect and “safety” effect, respectively). Specifically, an HSR speed reduction can have a positive effect on airlines due to longer HSR travel time, but a negative effect on airlines due to improved perception on HSR safety. Third, airline–HSR integration can be implemented through cooperation between airlines and HSR operators and through co-location of airports and HSR stations and can have important implications for intermodal transport and social welfare.

With significant changes in the aviation industry, various airport–airline arrangements have been formed to achieve alternative objectives. However, no consensus has been reached on such arrangements’ economic effects and the associated optimal public policy. This chapter aims to provide an interpretive review of the common types of airport–airline arrangements, the different modeling approaches used and key conclusions reached by recent studies. Our review suggests that airport–airline arrangements can take diverse forms and have been widely used in the industry. They may allow the airport and its airlines to internalize demand externality, increase traffic volume, reduce airport investment risks and costs, promote capacity investment, enhance service quality, or simply are a response to the competition from other airport–airline chains. On the other hand, such vertical arrangements, especially for those exclusively between airports and selected airlines, could lead to collusive outcomes at the expenses of non-participating organizations. The effects of such arrangements are also significantly influenced by the contract type, market structure and bargaining power between the airport and airline sectors. While case by case investigations are often needed for important economic decisions, we recommend policy-makers to promote competition in the airline and airport segments whenever possible, and demand more transparency or regulatory reporting of such arrangements. Policy debates and economic studies should be carried out first, before intrusive regulations are introduced.

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.

Over the past 50 years, air travel in the United States has increased from approximately 33 million passengers in 1960 to over 607 million passengers in 2007 (National Transportation Statistics, 2011, Table 1–40). This is over an 18-fold increase in air travel in the past five decades. Over that same time period, the number of airports increased modestly, from 15,161 in 1980 to 19,750 in 2009. The number of those airports serving public commercial traffic is even smaller, and has declined from 730 airports in 1980 to 559 in 2009 (National Transportation Statistics, 2011, Table 1–3). Together, these two facts point to phenomenal growth among airports (measured by the number of passenger trips).

This chapter examines the influence of outsourcing on airlines’ performance from countries of the Asia Pacific region. Performance in the context of this study is drawn from productivity growth and technical efficiency scores that are calculated using the standard data envelopment analysis (DEA) approach. We utilize data from airlines over the period 2003–2011 and estimate the impact of outsourcing on productivity and technical efficiency using generalized method of moments (GMM) estimators. The findings from DEA reveal an improvement in the technical efficiency score of airlines from Asia Pacific. Nonetheless, productivity estimates indicate fluctuations in the productivity growth trend of airlines, attributable to global economic recession in 2007/2008. GMM estimation results, however, suggest negative impacts of outsourcing on technical efficiency and productivity of the airlines from Asia Pacific countries. We offer several explanations for these outsourcing findings. Heavy outsourcing of airlines activities particularly maintenance of aircraft may negatively affect aircraft utilization and ultimately erode the service level of airlines. The erosion of the service level of airlines would affect the demand for air travel in a downward manner, thereby lowering the technical efficiency and productivity of airlines. Also, relatively low labor costs enjoyed by airlines in the Asia Pacific region would suggest that having many airline activities in-house would save operating expenses attributable to labor costs.

Safety is arguably the most important “quality” attribute of commercial aviation, yet it rarely figures into overt interfirm rivalry. Usually, airlines do not even allude to their safety record vis-à-vis rivals in their advertising and press statements. Moreover, statistical analysis by independent parties usually indicates that peer airlines within the same geographic region and segment of the industry have indistinguishable safety records (Barnett, 2010).