Modeling Framework for Airline Competition in the U.S. Domestic Network

Abstract

An equilibrium-based modeling framework for airline competition analysis at the network level was developed. The framework considers a deregulated business environment in which air carriers can freely plan their networks and flight schedules to maximize their profits. Air carriers are assumed to reach a state of equilibrium, in which no air carrier can improve its profit by unilaterally modifying its network structure or schedule configuration. An equivalent mathematical program and an efficient solution algorithm are presented. The output of this program is the air carriers’ flight frequency for each market at equilibrium. The model was applied to the U.S. domestic network considering 13 major air carriers, which are assumed to compete in the markets between 236 metropolitan areas. The framework can be applied to answer a wide range of policy questions and to understand decisions related to airport congestion pricing, market access restrictions, air carriers merging, and so forth.