The Impact of High-Speed Rail Competition on Airline On-Time Performance

Abstract

The rapid development of high-speed rail (HSR) has posed substantial competition to air transport. In this paper, we build an analytical model to investigate the impacts of HSR competition on profit-maximizing and welfare-maximizing levels of on-time performance (OTP) improvement efforts by the aviation sector (both airports and airlines), as well as the corresponding realized airline OTP levels. It is found that different from airline competition, HSR competition would decrease welfare-maximizing effort levels by both airports and airlines. The profit-maximizing airport and total effort level would also be discouraged. However, the profit-maximizing airline effort level can be raised when both total effort level by the aviation sector and inter-modal air-HSR service substitutability are sufficiently high (i.e., sufficiently low air-HSR horizontal and vertical differentiation). The airline OTP is determined by airports and airlines’ joined efforts to improve OTP and also the air traffic (“effort effect” vs. “traffic effect”). The impact of HSR competition on realized airline OTP depends on the relative dominance of either effect, which does not have clear-cut conditions. Thus it is possible but not necessarily true that the airline would end up with a better OTP in the presence of HSR competition. As a result, when intervening in airline OTP, the regulator needs to differentiate OTP requirements on a route basis, considering the presence of HSR competition and the air-HSR service substitutability.