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The one-shot nature of most theoretical models of strategic investment, especially those based on asymmetric information, limits our ability to test whether they can fit the data. We develop a dynamic version of the classic Milgrom and Roberts (1982) model of limit pricing, where a monopolist incumbent has incentives to repeatedly signal information about its costs to a potential entrant by setting prices below monopoly levels. The model has a unique Markov Perfect Bayesian Equilibrium under a standard form of refinement, and equilibrium strategies can be computed easily, making it well suited for empirical work. We provide reduced-form evidence that our model can explain why incumbent airlines cut prices when Southwest becomes a potential entrant into airport-pair route markets, and we also calibrate our model to show that it can generate the large price declines that are observed in the data.

In the last two decades, airline alliances were not only successful in extending the size of their networks, but also received approvals by public authorities to intensify their ooperation through to merger-like revenue-sharing joint ventures (JVs). We empirically investigate the impact of the implementation of such joint ventures on both the respective airlines’ competitive strategies as well as productive efficiency. Using U.S. DOT T100 International Segment data and applying airline-market fixed effects models, we find that joint ventures – compared to services with a lower degree of cooperation – lead to a 3-5 percent increase in capacity between the respective partner airlines’ hub airports; however, this is done at the expense of services elsewhere in the network. Productive efficiency, as measured by load factors, is found to be 0.5-5 percent lower for joint venture routes compared to routes operated under antitrust immunity only. We use our empirical results to discuss implications for the balancing of competition and cooperation in transatlantic airline markets.

Although the aviation industry is increasingly becoming important for Africa's economic development and integration, the ability of airlines to access foreign markets remains hindered by restrictive regulatory policies. Attempts have been made to fully liberalize the intra-African air transport market. Except for general assertions about the merits/demerits of liberalization, our empirical understanding of the welfare effects of such polices in Africa remains rudimentary. This study empirically measures the economic effects of air transport liberalization, mainly on two supply side variables: fare and service quality, measured as departure frequency. The results show up to 40 % increase in departure frequency in routes that experienced some type of liberalization compared to those governed by restrictive bilateral air service agreements. While the effect of liberalization is substantial in improving service quality, there is no evidence of its fare reducing effect.

In recent years the European airline industry has undergone critical restructuring. It has evolved from a highly regulated market predominantly operated by national airlines to a dynamic, liberalized industry where airline firms compete freely on prices, routes, and frequencies. Although several studies have analyzed performance issues for European airlines using a variety of efficiency measurement methods, virtually none of them has considered two-stage alternatives – not only in this particular European context but in the airline industry in general. We extend the aims of previous contributions by considering a network Data Envelopment Analysis (network DEA) approach which comprises two sub-technologies that can share part of the inputs. Results show that, in general, most of the inefficiencies are generated in the first stage of the analysis. However, when considering different types of carriers several differences emerge – most of the low-cost carriers’ inefficiencies are confined to the first stage. Results also show a dynamic component, since performance differed across types of airlines during the decade 2000–2010. We thank the comments and suggestions by the referees and the Editor. Diego Prior and Emili Tortosa-Ausina acknowledge the financial support of Ministerio de Ciencia e Innovación (ECO2013-44115-P and ECO2014-55221-P). Emili Tortosa-Ausina also acknowledges the financial support of Generalitat Valenciana (PROMETEOII/2014/046 and ACOMP/2014/283) and Universitat Jaume I (P1.1B2014-17). The usual disclaimer applies.

We find that congressional influences affect the amount of airport subsidies that a congressional district receives from the Essential Air Service (EAS) program. The EAS program was passed with the goal of helping to continue commercial air service to rural communities following the deregulation of the airline industry. Using subsidy data from 1998-2014, we find strong evidence that subsidies are higher in districts having congressional representation on the House Transportation Committee. Representation on the House Appropriations Committee is also associated with higher subsidies. Our empirical results, combined with news reports, are consistent with the EAS serving private as well as public interests.

The effect of corruption on airport productive efficiency is analyzed using an unbalanced panel data of major European airports from 2003 to 2009. We first compute the residual (or net) variable factor productivity using the multilateral index number method and then apply robust cluster random effects model in order to evaluate the importance of corruption. We find strong evidence that corruption has negative impacts on airport operating efficiency; and the effects depend on the ownership form of the airport. The results suggest that airports under mixed public–private ownership with private majority achieve lower levels of efficiency when located in more corrupt countries. They even operate less efficiently than fully and/or majority government owned airports in high corruption environment. We control for economic regulation, competition level and other airports’ characteristics. Our empirical results survive several robustness checks including different control variables, three alternative corruption measures: International Country Risk Guide (ICRG) corruption index, Corruption Perception Index (CPI) and Control of Corruption Index (CCI). The empirical findings have important policy implications for management and ownership structuring of airports operating in countries that suffer from higher levels of corruption.

The United States has negotiated bilateral open skies agreements to deregulate airline competition on US international routes, but little is known about their effects on travelers’ welfare and the gains from the US negotiating agreements with more countries. We develop a model of international airline competition to estimate the effects of open skies agreements on fares and flight frequency. We find the agreements have generated at least $4 billion in annual gains to travelers and that travelers would gain an additional $4 billion if the US negotiated agreements with other countries that have a significant amount of international passenger traffic. (JEL D12, L11, L51, L93, L98) F ollowing America’s successful airline deregulation experiment in the late 1970s, many countries deregulated their domestic airline markets. In contrast, deregulation of international airline markets has occurred more slowly. At the 1944 Chicago convention, the United States sought to establish multilateral agreements whereby market forces would primarily determine fares and capacities on international routes. But the effort failed, and ever since, bilateral agreements have provided the framework under which fares and service frequency between two countries are determined. The Carter administration promoted the idea of “open skies,” liberal bilateral agreements that freed market forces to be the most important determinants of fares and capacity. Beginning with a successful agreement with the Netherlands in 1992 and a recent one with Japan in late 2010, the United States has tended to consummate open skies agreements with one country at a time. Other countries have also taken that approach, while multilateral agreements among countries in Africa, South

Disclosure programs exist in many industries in which consumers are poorly informed about product quality. We study a disclosure program for airline on-time performance, which ranks airlines based on the fraction of their flights that arrive less than 15 minutes late. The program creates incentives for airlines to focus their efforts on flights close to this threshold. We find that firms in this industry are heterogeneous in how they respond to these incentives. Moreover, this heterogeneity correlates with internal firm characteristics. Our findings highlight the importance of interactions between incentives created by a disclosure program and firms' internal organizational practices. (JEL D22, L15, L25, L93)

This paper uses an original panel dataset with posted prices and sales to estimate a dynamic demand. We find that consumers become more price sensitive as time to departure nears which is consistent with having lower valuations. This result provides empirical support to a key theoretical implication in Deneckere and Peck [Deneckere, R., Peck, J., 2012. Dynamic competition with random demand and costless search: A theory of price posting. Econometrica 80, 1185-1247] --- high-valuation consumers purchase earlier. We also find that the number of active consumers increases closer to departure.

We develop a methodology based on two important criteria - sensitivity in delivery time and value-to-weight ratio – to classify air cargo products. The classification is applied to evaluate the trade integration in Southern Africa since air cargo is a valuable option to overcome trade barriers associated with poor land transport infrastructure and corruption. We find that South Africa’s exports to industrialized countries consist of precious products such as diamonds and gold. These products tend to be transported in the hand baggage of a security personnel as they leave the loading weight of an average airplane almost unaffected. When correcting African trade for these ‘invisible outliers’ in the loading freight, we find that African trade integration including Southern Africa is based upon a comparatively higher share of air cargo relevant products than Southern Africa’s trade with industrialized and emerging economies. A more liberal market for air cargo services can reduce transport costs and will allow the continent to integrate even further.

We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets—an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

This paper uses a unique individual transactions data set to investigate the effects of internet purchase on the prices paid for airline tickets. The analysis also investigates the effects of changes in the percentage of online transactions on both online and offline prices and on price dispersion. The analysis also uses these unique data to provide a more complete analysis of the factors affecting airline price levels and price dispersion, contributing more generally to our understanding of airline pricing. Our novel data set includes detailed transaction level data that includes ticket characteristics and restrictions, carrier, estimated flight level load factors, date of issue, departure date, other hedonic factors affecting prices, whether the ticket was purchased online or offline, and the share of online purchases for the city-pair. Controlling for numerous observed ticket characteristics, as well as carrier and route effects, the results show that online prices average about 13 percent less than offline prices. The analysis also shows that a ten percent increase in the online share of tickets sold on a route decreases average prices by an additional 5 percent, with more of this effect coming in the form of lower offline prices. The paper also finds evidence that an increase in online shares decrease price dispersion. The paper also uses these unique data to investigate the effects of hub dominance and high route shares on pricing. Due to data limitations previous investigations of these issues could not control for important ticket characteristics, load factors, and time of purchase in measuring the effects of concentration on price levels and dispersion. Our analysis controls for these factors while investigating the impact of market concentration on price levels and dispersion.

International trade occurs in physical space and moving goods requires time. This paper examines the importance of time as a trade barrier, estimates the magnitude of time costs, and relates these to patterns of trade and the international organization of production. Estimates indicate that each additional day spent in transport reduces the probability that the US will source from that country by 1 – 1.5 percent. Conditional on exporting country, estimates directly identify a willingness-to-pay for time savings using variation across exporters and commodities in the relative price / speed tradeoff for air and ocean shipping. Each day saved in shipping time is worth 0.8 percent ad-valorem for manufactured goods. Relative declines over time in air shipping prices make time-savings less expensive, providing a compelling explanation for aggregate trade growth, compositional effects in trade growth, as well as growth in time-intensive forms of integration such as vertical specialization. Specifically, the advent of fast transport (air shipping and faster ocean vessels) is equivalent to reducing tariffs on manufactured goods from 32% to 9% between 1950-1998.

Previous research has suggested that codeshare agreements eliminate double marginalization that exists when unaffiliated airlines independently determine the price for different segments of an interline trip. Using a structural econometric model, this paper investigates whether codeshare contracts do eliminate double marginalization. The results suggest that both upstream and downstream margins persist when the operating carrier of a codeshare product also offers competing single-carrier product(s) in the concerned market. Furthermore, counterfactual simulations from the model suggest that efficient pricing of these codeshare products would lower their price, and yield nontrivial increases in consumer welfare. (JEL D86, L13, L14, L93)

This paper examines the issue of market foreclosure by airline partnerships with antitrust immunity. Overlapping the data on frequency of service and passenger volumes on nonstop routes on the transatlantic airline market with the information on dynamics of airline partnerships, we find evidence consistent with the airlines operating under antitrust immunity refusing to accept connecting passengers from the carriers outside of the partnership at respective hub airports. When an airline partnership is granted antitrust immunity, airlines outside this partnership end up reducing their traffic to the partner airlines’ hub airports by 2.6-8.5 percent (depending on the specification and estimation technique involved). Our results suggest ambiguous welfare effects of antitrust immunity on some markets, where previous studies indicated airline consolidation should benefit consumers.

A use-or-lose provision requires that firms employ a certain minimum fraction of their productive capacity. Variants have been used by regulators in the airline and wireless communications industries, among others. A typical stated objective is to limit capacity hoarding, thereby increasing aggregate output and welfare. When the dominant firm is more efficient than fringe firms, we find that imposing a use-or-lose provision induces the dominant firm to acquire capacity from the fringe, which causes aggregate output to fall. When the dominant firm is less efficient than the fringe, aggregate output rises. In both cases, total surplus may rise or fall. (JEL D43, K21, L13, L93)

Das Platzen von spekulativen Preisblasen an den Immobilienmärkten führt oft zu realwirtschaftlichen Verwerfungen, die mit hohen Produktions- und Beschäftigungsverlusten verbunden sind. In diesem Beitrag wird diskutiert, inwieweit institutionelle Rahmenbedingungen das Entstehen und die Aufblähung von Preisblasen verhindern können. Im Vergleich zu den Erfahrungen anderer Länder zeigt sich, dass das institutionelle Regelwerk in Deutschland potenziellen Fehlentwicklungen eher entgegenwirkt. Trotz der jüngsten Preissteigerungen ist eine spekulative Blase für Deutschland derzeit nicht erkennbar. Allerdings haben sich in letzter Zeit die Gefahren verstärkt. So gilt Immobilienbesitz auch in Zeiten der Schuldenkrise als sichere Wertanlage, was die Nachfrage erhöht. Und eine Wiedereinführung der Eigenheimzulage würde nicht nur neuen Wohnraum schaffen, sondern könnte auch die Preisentwicklung an den Immobilienmärkten anheizen. Vor allem ist die jüngste Tendenz der Banken problematisch, Hypothekenkredite mit immer geringeren Eigenkapitalanteilen an Haushalte zu vergeben. When speculative price bubbles on real estate markets burst, the results are often distortions in the real economy, associated with substantial losses in production and employment. This paper discusses the degree to which institutional frameworks can prevent speculative bubbles from forming and expanding. Comparing experiences in different countries, it shows that in Germany institutional regulations are more likely to counteract the risk of undesirable developments. Despite recent price rises, no speculative bubble can currently be identified in Germany- but the danger has increased. In times of debt crisis, real estate is regarded as a safe investment, which boosts demand. And although reintroducing Germany's former subsidy for owner-occupied home purchases would create new housing space, it could also fuel price rises in the property market. A particular problem is the banks' recent tendency to grant mortgages to households on the basis of lower and lower deposits.

This article investigates whether anticipated technological progress can be expected to be strong enough to offset carbon dioxide (CO2) emissions resulting from the rapid growth of air transport. Aviation CO2 emissions projections are provided at the worldwide level and for eight geographical zones until 2025. Total air traffic flows are first forecast using a dynamic panel-data econometric model, and then converted into corresponding quantities of air traffic CO2 emissions using specific hypotheses and energy factors. None of our nine scenarios appears compatible with the objective of 450 ppm CO2-eq. (a.k.a. "scenario of type I") recommended by the Intergovernmental Panel on Climate Change (IPCC). None is either compatible with the IPCC scenario of type III, which aims at limiting global warming to 3.2°C.

The aviation industry plays an important role for their customers and for the economy in general. However, the value created by the airline companies does not reflect in the company's profitability. Nevertheless, the demand for airline transport services will continue to increase, especially in the developing economies. This will require the substitution and the extension of the existing capacity.

Industry participants agree that, when inclement weather forces the FAA to reassign airport landing slots, incentives and property rights should be respected. We show that the FAA's Compression algorithm is incentive compatible, but fails to guarantee a form of property rights. This is significant since these conditions were the motivation for introducing Compression a decade ago. We give an alternative mechanism that does satisfy these conditions. It has the flavor of Top Trading Cycle variants of Abdulkadiroğlu and Sönmez (1999) and Pápai (2000) for related but distinct models. Finally, both mechanisms may fail another condition: the incentive to vacate unusable landing slots. (JEL D45, D82, L93, L98, P14, R41)

Using information on 2,300 Air Services Agreements covering 184 countries, we investigate the impact of air services liberalization on passenger flows. We find that a certain level of liberalization is required to have a positive effect on passenger traffic. In particular, we estimate that the multilateralization of multiple designation provisions, Open Skies Agreements and European Economic Area-type agreements would increase passenger traffic worldwide by 0.5, 5, and 10 percent, respectively. The potential endogeneity problem is carefully dealt with using instrumental variables and propensity score matching. (JEL F13, L51, L93, L98, R41)

In this article we study the joint decision process of changing the structure of jobs and laying off individual workers in a firm that downsizes its workforce. A hierarchical decision model is proposed and estimated using personnel data from a firm in demise comparing the characteristics of the individual workers and the structure of the firm's labour force before and after its reorganization. Our results show that workers in jobs in the top levels of each skill group's hierarchy are better protected against downsizing due to larger productivity shocks and larger firing costs.

This paper investigates the nature of day-to-day competition between flights using a unique panel data set on prices and inventories. We use instrumental variables methods and several spatial autoregressive models (SAR) to estimate price reaction functions. The primary source of product differentiation is departure time. After controlling for flight-specific characteristics and various sources of price dispersion, we find important evidence of demand shifting between competing flights. Most of the shift is being captured by flights scheduled to depart within a 3-hour window. We find no evidence of demand shifting between airports.

This article analyses energy efficiency coefficients and their evolution in the air transport sector. The proposed ’macro-level’ methodology allows obtaining energy efficiency coefficients and their growth rates (corresponding to the evolution of energy gains) from 1983 to 2006 for eight distinct geographical regions and at the world level. During the whole period, energy efficiency improvements have been equal to 2.88% per year at the world level, with strong differences between regions. Moreover, our results indicate that domestic air travels are less energy efficient (i.e. more carbon intensive) than international air travels. This result applies in all regions.

The network choice revenue management problem models customers as choosing from an offer set, and the firm decides the best subset to offer at any given moment to maximize expected revenue. The resulting dynamic program for the firm is intractable and approximated by a deterministic linear program called the CDLP which has an exponential number of columns. However, under the choice-set paradigm\ud when the segment consideration sets overlap, the CDLP is difficult to solve. Column generation has been proposed but finding an entering column has been shown to be NP-hard. In this paper, starting with a concave program formulation called SDCP that is based on segment-level consideration sets, we add a class of constraints called product constraints (σPC), that project onto subsets of intersections. In addition we propose a natural direct tightening of the SDCP called ESDCPκ, and compare the performance of both methods on the benchmark data sets in the literature. In our computational testing on the\ud benchmark data sets in the literature, 2PC achieves the CDLP value at a fraction of the CPU time taken by column generation. For a large network our 2PC procedure runs under 70 seconds to come within 0.02% of the CDLP value, while column generation takes around 1 hour; for an even larger network with 68 legs, column generation does not converge even in 10 hours for most of the scenarios while 2PC\ud runs under 9 minutes. Thus we believe our approach is very promising for quickly approximating CDLP when segment consideration sets overlap and the consideration sets themselves are relatively small.

This paper discusses various issues in the implementation of a local market for aircraft noise licenses to solve the noise externalities harming the residents located near airports. The design of such markets is affected by aircraft heterogeneity, wind contingencies, peak times, runways capacity constraints, hub strategies, and airport planning is discussed.

This study aims at assessing the prospects for a more liberal air passenger transport regime in the Asia Pacific region under the auspices of the Asia Pacific Economic Cooperation (APEC). The decades-old bilateral air services regime has been under pressure to reform for several years. Notwithstanding the critical role that international air transport plays in the ongoing integration of Asia Pacific economies, the airline industry remains one of the region`s most heavily regulated. Estimates from the gravity equation employing the Air Liberalization Index (ALI) developed by the World Trade Organization (WTO) Secretariat find a positive and statistically significant relationship between relaxing bilateral air services restrictions and air passenger traffic. The results hold for a wide range of specifications controlling for fixed effects, different sample sizes, and for all variants of the ALI. The preferred specification, the Anderson and Van Wincoop (2003) equation, provides the most conservative estimates. Prior to taking account of general equilibrium effects, the results imply that if APEC economies eased air transport restrictions to double the ALI scores with their aviation partners, both within and outside the APEC region, traffic would increase by 4.5%.

A zsúfoltság világszerte számos nagy repülőtéren jelen van. A zsúfoltság késlekedést, kellemetlenséget és költséget okoz, és az ebből származó hatékonyságveszteség problémáját kezelni kell. Számos módszer közül ez a tanulmány a repülőtéri zsúfoltság az adminisztratív résidő-kiosztási módszerre és a zsúfoltsági árazásra koncentrál. Először a szakirodalom alapján megmutatjuk, hogy a zsúfoltság mérséklésére a zsúfoltsági árazás hatékonyabb módszer, mint a résidőkiosztás. A gyakorlatban azonban az európai repülőterek az adminisztratív résidőkiosztás valamilyen formáját alkalmazzák. Ebben a cikkben a résidő-értékelési mátrixot mutatjuk be, amelynek segítségével az adminisztratív résidőkiosztás hatékonyságvesztesége megbecsülhető. Journal of Economic Literature (JEL) kódok: D62, H23, L93, Crowding occurs worldwide in big airports, causing delays, discomfort and additional costs amounting to an efficiency loss that must be treated. Of the numerous methods applied, this paper focuses on the administrative slot-allocation system and on pricing of crowding. Based on the literature, the author begins by showing that slot pricing is a more efficient way to combat crowding than slot allocation. In practice, however, European airports apply some form of administrative allocation of slots. The article presents a slot-evaluation matrix by which the loss of efficiency caused by administrative slot allocation can be estimated.

This article estimates a Frequent Flyer Programs (FFP) price premium – higher fares associated with a larger proportion of travellers using FFP. The results show that FFP affect the entire price distribution, but the effect is larger on lower end fares. In addition, airport dominance increases the premium on less expensive fares but has no effect on the premium associated with the right tail of the price distribution.

We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage and newer technology, as well as firms with larger aircraft fleets. We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies, and foster productivity.

This paper is aimed at assessing the impact of deregulation initiatives on the recent performance of Mexico’s airline industry. By doing so, three econometric models are estimated with the view of differentiating the weights of deregulation variables from the ones of non-deregulation variables. The main statistical findings support the idea that deregulation in Mexico’s airlines: 1) has had only a marginal positive effect on the number of passengers; 2) has been no influential in establishing a definite competitive price structure in the market, and 3) has rendered insufficient benefits for improving competition conditions in the airline market.

In the context of present research, author attempts to bridge the gaps in the literature by investigating perceived justice dimensions and to examine whether brand image plays moderating role in the relationships between perceived justice and recovery satisfaction. The study is based on primary data, collected from the air customers in developing country, India. The first model of the hierarchical regression analyses indicated that all three justice dimensions of distributive justice, procedural justice, and interactional justice are positively related to recovery satisfaction, and the effect of distributive justice on recovery satisfaction was stronger than interactional justice, and subsequently, effect of interactional justice on recovery satisfaction was stronger than procedural justice. The results also confirmed that all three interaction terms were significant, which shows that corporate image plays a moderating role between perceived justice dimensions and recovery satisfaction.

V prezentovanom článku skúmame vplyv leteckej dopravy na svetovú ekonomiku, vyjadrený prostredníctvom podielu na hrubom domácom produkte. Vypracúvame metodiku troch multiplikátorov – bežný multiplikátor leteckej dopravy, rozšírený multiplikátor leteckej dopravy a výkonový multiplikátor leteckej dopravy – a skúmame rozdiely ich hodnôt v jednotlivých regiónoch sveta. Prichádzame k záveru, že význam indukovaných aj katalytických dopadov leteckej dopravy klesá so zvyšujúcim sa stupňom saturácie leteckého trhu. Preto je možné predpokladať, že význam leteckej dopravy v čase meraný jej príspevkom k hrubému domácemu produktu bude klesať.

Information, communication and transport networks have always been in a state of flux, while they also influence each other. Extensive research efforts have been made to investigate the dynamics in the structure and use of networks, e.g., by means of network geometries, small-world effects and scale-free phenomena. We will illustrate these new developments on the basis of airline network evolution. The present paper provides a new contribution to the analysis of topological properties of complex airline networks. Using Lufthansa's networks as an example, this paper aims to show the empirical relevance of various network indicators - such as connectivity and concentration - for understanding changing patterns in airline network configurations. After an extensive discussion of various statistical results, a decision-aid method, viz. multi-criteria analysis, is used to investigate the robustness of our findings. The results highlight the actual strategic choices made by Lufthansa for its own network, as well in combination with its partners in Star Alliance.

We investigate the role of limited access to airport facilities as a determinant of the hub premium in the U.S. airline industry. We use original data from competition plans that airports are required to submit to the U.S. Department of Transportation in compliance with the Aviation Investment and Reform Act for the Twenty-First Century. We collect information on the availability and control of airport gates, leasing arrangements, and other restrictions limiting the expansion of airport facilities. We find that the hub premium is increasing in the ticket fare. We find that control of gates is a crucial determinant of this premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures from an airport.

This paper assesses the determinants of aircraft size and frequency of flights on airline routes by considering market demographics, airport characteristics, airline characteristics and route characteristics. The paper shows that frequency and aircraft size increase with population, income, and runway length. An increase in the proportion of managerial workers in the labor force or the proportion of population below the age of 25 results in greater frequency with the use of small planes. Slot constrained airports and an increase in the number of nearby airports lead to lower flight frequency with the use of smaller planes. Hubs and low cost carriers are associated with larger plane sizes and higher frequency, while regional airline ownership leads to higher frequency and the use of smaller planes. An increase in distance between the endpoints leads to lower frequency with the use of larger planes. As airport delay rises, airlines reduce frequency and use smaller planes, though when airport cancellations rise, flight frequency increases with the use of larger planes. This finding suggests airlines utilize frequency and aircraft size to hedge against flight cancellations.

article In a hub-and-spoke network, the profit function of an airline is supermodular with respect to the airline's own entry decisions for different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy for deterring the entry of competitors. This paper presents an empirical dynamic game of airline network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with special attention to empirical evidence regarding the entry deterrence motive.

The valuation of externalities in transport planning is a serious and difficult business. Many methods advocated and used in the past, such as hedonic pricing, the human capital approach and contingent valuation; have been rightly criticised for their many shortcomings. Among specialist there is a quasi-consensus nowadays in that stated choice methods are superior for this task. We refer to their use for valuing accidents, noise, atmospheric pollution and the feeling of safety when walking in urban streets, discussing a series of design and application issues through case studies. In particular we touch upon experimental design (context, selection of attributes, definition of payment mechanism and design approach), survey conduction (data collection strategy, sample selection, and use of extra questions to aid data validation and analysis), and modelling using the advanced methods that this type of quality data requires/allows for. Our main conclusion is that properly conducted and designed stated choice methods are a valid tool to estimate willingness-to-pay for reducing transport externalities, even in situations involving poor and/or less than fully literate individuals. We also recommend conducting local studies, as cultural differences play a bigger role than normally recognised, and issues such as differences in risk aversion may be crucially important in determining willingness-to-pay values. Die Schätzung externer Effekte des Verkehrs gehört zu den kompliziertesten Problemen der verkehrsökonomischen Forschung. Viele einst verfochtene und angewandte Methoden, wie zum Beispiel die hedonische Preisbildung, der Humankapitalansatz und die Kontingente Bewertungsmethode, werden zu Recht wegen ihrer zahlreichen Unzulänglichkeiten kritisiert. Die Mehrheit der Experten ist inzwischen der Auffassung, dass Stated-Choice-Methoden für diese Aufgabe am besten geeignet sind. Dieser Beitrag beschäftigt sich mit der Anwendung von Stated-Choice- Methoden bei der Bewertung von Verkehrsunfällen, Lärm, Luftverschmutzung sowie des Sicherheitsempfindens beim Fußweg durch die Stadt. Er erörtert anhand von Fallstudien Fragen des Designs und der Umsetzung von Stated-Choice-Experimenten. Besonderes Augenmerk liegt auf der Versuchsgestaltung (Kontext, Auswahl der Attribute, Festlegung des Preismechanismus und der Darstellungsform), der Durchführung derartiger Befragungen (Strategie für die Datenerhebung, Stichprobenauswahl und Einbeziehung zusätzlicher Fragen, um Daten validieren und analysieren zu können) sowie der Modellierung. In diesem Zusammenhang nutzen wir moderne statistische Methoden, die beim Umgang mit dieser Art von Daten erforderlich beziehungsweise möglich sind. Die wichtigste Schlussfolgerung in diesem Beitrag lautet, dass sorgfältig geplante und durchgeführte SC-Experimente ein zuverlässiges Instrument zur Schätzung der Zahlungsbereitschaft (engl. willingness to pay, Abkürzung und im Folgenden WTP) für eine Verringerung externer Effekte im Verkehrswesen sind, auch wenn nicht lese- und schreibkundige Menschen sowie einkommensschwache Bevölkerungsgruppen befragt werden. Es ist jedoch die Durchführung lokaler Studien zu empfehlen, da kulturelle Unterschiede eine wichtige, jedoch oft unterschätzte Rolle spielen und Faktoren wie etwa Unterschiede bei der Risikoaversion für die Bestimmung von WTP-Werten entscheidend sein können.

The commercial aircraft manufacturing industry is starting a process of delocalization from developed to developing countries. From its original strongholds in the United States, Western Europe and Canada, it is now moving towards the largest new industrial countries of Brazil, Russia, India and China. The technology transfer channels include investment by multinational corporations, participation in global value chains, and outsourcing by large prime contractors based in North America and Western Europe. The process through which technological learning occurs has been studied in economics as international knowledge spillovers. In management, similar processes have been studied under outsourcing and global value chains. Drawing hypotheses from theory, the paper analyzes the patterns of trade, foreign direct investment and outsourcing in the global aircraft manufacturing industry. The evidence amassed shows that through these mechanisms, North American and Western European aircraft industries risk now losing their dominance to the developing countries.

The U.S. airline industry went through tremendous turmoil in the early 2000's. There were four major bankruptcies and two major mergers, with all legacy carriers reporting a large profit reduction. This paper presents a structural model of the airline industry, and estimates the impact of demand and supply changes on profitability. We find that, compared with the late 1990s, in 2006, a) air-travel demand was 8% more price sensitive; b) passengers displayed a strong preference for direct flights, and the connection semi-elasticity was 17% higher; c) the changes of marginal cost significantly favored direct flights. These findings are present in all the specifications we estimated. Together with the expansion of low cost carriers, they explained more than 80% of the decrease in legacy carriers' variable profits.

Cieľom predkladaného článku je teoreticky vymedziť liberalizáciu leteckej dopravy s poukázaním na aktuálne trendy a možný budúci vývoj. Po krátkom úvode nasleduje grafický model liberalizácie znázornený prostredníctvom kriviek ponuky a dopytu. Druhá časť charakterizuje tri spôsoby prístupu k liberalizácii – bilaterálny, multilaterálny a globálny. Časť 3 sa zaoberá formami spolupráce aerolínií ako súčasti liberalizácie, časť 4 sa venuje liberalizácii prepravných práv a časť 5 poukazuje na podľa nášho názoru najzásadnejší problém na ceste k úplnej liberalizácii sektora – obmedzenia vo vlastníctve aerolínií.

Cieľom práce je analýza faktora národnosti a regionálnej príslušnosti v rozhodovacom procese pri výbere lietadiel aerolíniami a inými klientmi. Zameriavame sa na dvoch najvýznamnejších producentov lietadiel súčasnosti, Airbus a Boeing. Prostredníctvom skúmania objednávok lietadiel za uplynulých 20 rokov prichádzame k záveru, že národný faktor hrá významnú úlohu – klienti zo Severnej Ameriky uprednostňujú Boeing, kým klienti z Európy uprednostňujú Airbus. Sila národného faktora je pritom silnejšia v Severnej Amerike. Zaoberáme sa tiež objednávkami lietadiel v ostatných regiónoch sveta.

Im Februar 2009 trat die EU-Richtlinie zur Einbeziehung des internationalen Luftverkehrs in den EU-Emissionshandel mit CO2-Zertifikaten (EU-ETS) in Kraft. Ab dem Jahre 2012 werden für praktisch alle in der EU startenden und landenden Flüge Zertifikate erforderlich sein. Die Erstzuteilung von Emissionszertifikaten an Fluggesellschaften wird auf einem sogenannten Benchmark basieren, der durch die Division der CO2-Emissionen des Zeitraums 2004 bis 2006 durch die Verkehrsleistung des Jahres 2010 berechnet wird. Die vorliegende Untersuchung stellt ein empirisches Simulationsmodell zur Abschätzung der Effekte des EU-Emissionshandels (EU-ETS) für den Luftverkehr vor. Mit Hilfe dieses Modells werden aktuelle und zukunftsbezogene CO2-Emissionen und Verkehrsleistungen des europäischen Luftverkehrs geschätzt. Weiterhin werden die ökonomischen Effekte des EU-Emissionshandels auf den Luftverkehrssektor insgesamt, auf ausgewählte Gruppen von Fluggesellschaften sowie auf die EU-Mitgliedstaaten analysiert und erörtert. Im Ergebnis kann gezeigt werden, dass einzelne Gruppen von Fluggesellschaften und EU-Mitgliedstaaten ganz unterschiedlich von der neuen EU-Gesetzgebung betroffen sein werden. In February 2009, the EU Directive for the inclusion of international aviation into the EU emission trading with allowances for CO2 (EU-ETS) came into force. From 2012, virtually all flights landing and departing in the EU will be required to hold and surrender allowances. The initial allocation of allowances to individual aircraft operators will be based on a benchmark, which is calculated by dividing the CO2 emissions for the period from 2004 to 2006 by the reported revenue ton kilometres of the year 2010. In this article, an empirical model for the estimation of the effects of the EU-ETS for aviation is presented. With this model, current and future CO2 emissions and revenue ton kilometres of European aviation are estimated. Furthermore, the economic effects of the EU-ETS on air transport in general, on airline business models and on EU Member States are analysed and interpreted. As a result, it is shown that individual airline business models and EU Member States are quite differently affected by the new EU legislation.

Approach to modeling evolution of market of civil aircraft is proposed. The study of prospects of the US passenger traffic is carried out on the basis of the constructed econometric model of oligopoly in airline industry. Scenarios of key indicators of the market (market structure, revenue passenger miles, aircraft fleet, etc.) are built. Influence of jet fuel prices on the future of the industry is analyzed. In the article linear dynamic model of learning, with taking into account organizational forgetting in aircraft manufacturing, is built. It was applied to the study of the effects of learning and forgetting in aircraft production in Boeing and Airbus. Utilization of such a model makes it significantly easier computation of optimal strategies of companies with durable lifecycle of products. An approach to forming requirements to indicators of new breakthrough technique is proposed (with application to the market of narrow-bodied aircraft)

The authors, based on the complete survey of Russian airlines that was conducted in winter of 2006-2007, analyze essential entry-barriers in the industry, and econometrically estimate efficiency of methods for overcoming entry-barriers in the Russian PAI. They find that there are significant technological and behavioral entrybarriers in the industry. The paper doubts that this industry is contestable in contemporary Russia, although it is typically contestable in Europe and the USA. Econometric estimation of entry-barriers points that administrative barriers are the most significant restrictions of competition.

We examine how collateral affects the cost of debt capital. Theories based on borrower moral hazard and limited pledgeable income predict that collateral increases the availability of credit and reduces its price. Testing these theories is complicated by the very selection problem which they imply: creditors will demand collateral precisely from those borrowers who are riskier. This selection problem leads to a positive relation in the data between the presence of collateral and the loan yield. Analyzing the extensive margin of collateral use, therefore, masks the hypothesized negative impact that collateral exhibits on debt yields. In this paper, we alleviate this problem by focusing on a particular industry and examining its intensive, rather than extensive, margin of collateral use. Using a novel data set of secured debt issued by U.S. airlines, we construct industry-specific measures of collateral redeployability. We show that debt tranches that are secured by more redeployable collateral exhibit lower credit spreads, higher credit ratings, and higher loan-to-value ratios -- an effect which our estimates show to be economically sizeable. Our results suggest that the ability to pledge collateral, and in particular redeployable collateral, lowers the cost of external financing and increases debt capacity.

We study how air travel consumers departing from a multi-airport region trade-off across airport and airline supply characteristics. We empirically investigate this trade-off by estimating a weighted conditional logit model of airport–airline choice, using survey data on travels departing from one of three San Francisco Bay Area airports and arriving at one of four airports in greater Los Angeles in October 1995. Non-price characteristics like airport access time, airport delay, flight frequency, the availability of particular airport–airline combinations, and early arrival times are found to strongly affect choice probabilities. We calculate marginal effects and counterfactual scenarios to compare the values of these characteristics among each other and across traveler type. In order to examine the robustness of the conditional logit model, we estimate a mixed logit model, and find that the results are similar. We attribute the similarity to our strictly defined travel market and to our distinction between leisure and business travelers, thus controlling for two important sources of consumer heterogeneity. We consider the implications of our empirical findings on vertical integration between airlines and airports, on the effectiveness of “airport dominance,” and on the competitive effect of entry by low cost carriers.

We explore patterns of vertical integration in the US airline industry. Major air lines subcontract portions of their network to regional partners, which may or may not be owned. We investigate if ownership economizes on ex post renego tiation costs. We estimate whether airlines are more likely to use owned region als on city pairs with adverse weather {which makes adaptation decisions more frequent) and on city pairs that are more integrated into the major's network (which raises the costs of having adaptation decisions resolved suboptimally). Our results suggest a robust empirical relationship between adaptation and vertical integration in this setting. (JEL L14, L22, L24, L93) How do firms decide which transactions to carry out in-house and which to procure through the market? In response to this question, a large theoretical literature has developed. One branch of this literature-transaction cost economics-argues that integration may be a more efficient way to organize when contracts are incomplete and parties cannot easily switch trading partners (Oliver Williamson 1975, 1985).J Under these conditions, ex post renegotiation will be both nec essary and costly and, as a result, the transaction costs of market exchange may be substantial. Empirical studies testing this hypothesis have focused primarily on the effect of asset specific ity on vertical integration and have generally found a positive relationship.2 However, as Steven Tadelis (2002) emphasizes, holding asset specificity constant, variation in transaction costs will also result from differences in transaction complexity. Complex transactions are associated with greater contractual incompleteness, and in turn more costly haggling over ex post adaptation decisions. Yet, relative to asset specificity, the frequency of adaptation decisions as a determinant of vertical integration has received considerably less attention in the empirical literature.3

Frequent flier plans (FFPs) may be the most famous of customer loyalty programs and plans created on the FFP model are now offered by sellers in a number of other industries. We present a theory of FFPs that models them as efforts to take advantage of the agency relationship between employers - who pay for airline tickets - and employees - who book those tickets. In this view, FFP benefits constitute bribes, inducing employees to book flights at higher prices. We show that a single airline offering an FFP has a large advantage over its rival. However, when competing airlines operate plans, benefit competition may be so intensified that the airlines' profits fall even while prices to employers rise. Thus, in contrast to switching cost treatments of FFPs, we may observe prices and profits moving in opposite directions.

We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its “competitive effects,” to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data. We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing theWright Amendment would increase the number of markets served out of Dallas Love.