This paper examines relative fares and route competition for several years before and after the mergers. This captures trends that preceded the mergers as well as effects that take longer than a year to materialise. The results, which need to be interpreted with caution, suggest that the effects of some mergers are benign while others can lead to significant fare increases.
Topic: 13.4 Aviation
This paper measures the impacts of a codesharing agreement between non-market leaders on the market leader’s price and volume. An analytical model is developed and applied to panel data from trans-Pacific routes for the 1982-92 period.
Modelling and Testing the Effect of Market Structure on Price: The Case of International Air transport
A model is developed to test for the effect on international airline prices of a number of market structure variables, most importantly the US liberal bilateral policy implemented in 1978. The results indicate that liberal bilateral agreements reduce discount fares but not full fares. This implies that holiday-makers and other discretionary travellers are the prime beneficiaries from a liberal bilateral policy.
This paper examines how decisions on pricing and the allocation of capital inputs are determined in the market for charter air travel between the UK and Europe. Charter air fares exhibit a well defined peak-load structure and one which had responded flexibly to the constraints which have recently arisen in airport and airspace capacity. This suggests that the price mechanism is an effective instrument for resolving the allocation of peak capacity in aviation markets.
Optimal air fares and frequency may bring profits, but normally a subsidy will be needed. It is also possible for competition to provide the optimal number of flights.
The author finds that airline demand is price elastic except for first class. Obstacles to competition and to adjustments of capacity are political rather than economic. He suggests that fares should be based on long-run marginal cost, and reductions should be made only for off-peak travel, density of route, advance payment, and unrestricted group bookings.
The authors differ from the view expressed by J C Miller, in his article in this Journal in September 1973, that belly-freight rates should always be set by reference to costs in freighter aircraft.
In a trade-off between prices and schedule convenience too little attention is paid to public preferences. New types of services should be encouraged with peak load pricing and very high density at low prices during off-peak periods.
Where freight is carried in the bellies of combination aircraft which also carry passengers, Professor Miller concludes that the service is in the long run neither a joint product nor a by-product, and that the U.S. Civil Aeronautics Board is right in regulating charges by reference to freighter costs.