Airline Non-Price Competition Between FSC and LCC Carriers: Varying Airline Optimization Strategies
by Lucas Johnson
Abstract
The goal of this paper is to extend the discourse surrounding certain topics in terms of airline optimization which is defined in this paper as the ability of an airline to efficiently transport goods and passengers as well as accrue revenue from its airplanes relative to its total capacity to transport goods and accrue revenue. Previous literature deals heavily with the differences between LCC and FSC carriers as well as the importance of both customer satisfaction and operational efficiency for the ability of an airline to compete. The analysis of this paper is in the form of a panel-regression performed on a dataset obtained from the T1 Airline Summary Statistics form maintained by the Bureau of Transportation Statistics. This data demonstrates the relationship between dependent variables represented by certain metrics of airline success, revenue passengers enplaned, revenue passenger miles and revenue ton miles, with independent variables that reflect optimization in terms of both payload and passenger transport. These variables are influenced by factors such as certain measures of timeliness competition defined in this analysis as ramp inefficiency and departure efficiency.
Professor Grace Kim, Faculty Advisor
JEL Codes: L93; D22; R4; L13
Empirical Evidence of Airline Merger Waves Based on A Selective Entry Model
By Peichun Wang
Ever since the Deregulation Act in 1978 in the U.S. airline industry, there have been series of major airline mergers and acquisitions, notably three major waves in the 1980’s, 1990’s, and late 2000’s. These mergers, especially the more recent multi-billion mergers (e.g. Delta- Northwest, United-Continental) have shown a trend of substantial market consolidation that inevitably worries consumers as well as the U.S. Department of Justice (DoJ). Most academic literature to date have tried to study mergers in a static setting where these mergers are assumed to be exogenous. However, the clear pattern of merger waves in the airline industry, as well as many other industries, suggests strong correlation between mergers. A few studies that attempted at a dynamic merger model remain theoretical due to computational barriers. In this paper, I found empirical evidence of merger waves by investigating the change of airline carriers’ incentive to merge after another merger between two other carriers. These results are based on a structural model of the U.S. airline industry, in which I estimate demand with a standard (for dierentiated product markets) discrete-choice nested logit model, but allow for selection on entrants’ costs and qualities, i.e. rms with lower costs and higher qualities would have been selected into the market before the merger, suggesting that post-merger entry is less likely than what non-selective entry models have predicted.
Advisor: James Roberts | JEL Codes: L13, L25, L93 | Tagged: Airline, Merger Wave, Selective Entry
