Airlines’ reaction to high-speed rail entries: Empirical study of the Northeast Asian market

Abstract

We investigate the impact of the commencement of high-speed rail (HSR) services on airlines’ domestic available seats on affected routes in China, Japan, and South Korea. The study is based on a dataset covering the 1994–2012 period. We use the propensity score matching method to pair HSR affected routes with routes without HSR services. The difference-in-difference approach is used to estimate the impact of HSR entry. We find that HSR entries may, on average, lead to a more significant drop in airlines’ seat capacity in China than in Japan and Korea given similar HSR service speed. In China, HSR services with a maximum speed about 200km/h can produce strong negative impacts on medium-haul air routes but induce more air seat capacity on long-haul routes. HSR services with a maximum speed of 300km/h have little extra impact on medium-haul routes but a strong negative impact on long-haul routes. Finally, although HSR has a strong negative impact in Japan’s short-haul and medium-haul air markets, little impact is observed in its long-haul markets.