US Domestic Airline Research Articles

Disruption and recovery of the US domestic airline networks during the COVID-19 pandemic

The COVID-19 pandemic has had serious impacts on the airline industry. Ensuring that aviation policies in emergent situations both guarantee network connectivity and maintain competition among airlines is crucial in these circumstances. To this end, we aimed to understand the network dynamics of individual airlines. In this study, we quantitatively reveal the day-to-day dynamics of these US domestic airline networks, comprising 17 airlines, from January 2019 to December 2021. Specifically, we applied a framework for analyzing temporal networks, in which the network structure changes over time. We found that, first, even though the number of nodes and edges returned to pre-pandemic levels around July 2021, the structure of the entire US domestic airline network remained altered. We also found that the network dynamics varied significantly from airline to airline. Full-service carriers were less flexible in changing their network structure and suffered higher revenue losses. On the contrary, most regional carriers completely shifted to a new structure, which may have contributed to reducing their revenue losses. Low-cost carriers were characterized by more pronounced differences between airlines and drastically changed their network structure immediately after the declaration of a national emergency. Finally, we also examined the recovery process and found that the flights connecting airports that are more central and share more common neighbors, and those connecting airports with larger numbers of connections tend to recover earlier for most of the airlines.

Financial distress and service decisions: Empirical evidence from the US domestic airlines

AbstractUnderstanding the firm's service decisions under financial distress is of central importance to service quality regulators and operation management scholars. This study aims to add new evidence to the relationship between financial distress and airline services and reconcile the discrepancies between theory, practical implications, and empirical results. We examine if and how airlines in financial distress may change their service provisions to turn around, with a particular focus on the moderating role of operating unit costs and market share. In the study, four measures of service failure (the inverse of service quality) are constructed and evaluated: airline arrival delay minutes attributable to the carrier, cancelations attributable to the carrier, mishandled baggage, and involuntary denied boardings. In the US domestic airline business context, we estimate the mixed‐effects model using panel data from the Department of Transportation and Wharton Research Data Services. We find robust evidence that financial distress plays a vital role in airline service provisions, and the distress–service relationship is contingent upon the operating unit costs of airlines. The findings provide evidence to help explain the different and sometimes contradictory empirical findings. We depend on the aggressive strategy framework to understand the service effect of airline financial distress.

Covid-19 infection risk on US domestic airlines

Working with recent data and research findings, we estimate the probability that an air traveler in economy class would have contracted Covid-19 on a US domestic jet flight over the nine-month period June 2020 to February 2021. The estimates take account of the rates of confirmed Covid-19 infections in the US, flight duration, fraction of seats occupied, and some demographic differences between US air travelers and US citizens as a whole. Based on point estimates, the risk of contracting Covid-19 in-flight exceeded 1 in 1000 on a fully-loaded two-hour flight at the height of the pandemic over the nine months, but was about 1 in 6000 on a half-full flight when the pandemic was at a low ebb. However, these estimates are subject to substantial uncertainty, with the 10th percentiles of various risk distributions only about 1/7 as large as the medians, and the 90th percentiles about four times as large. Based on seat-occupancy levels on US flights for each month over June 2020 to February 2021, the median risk estimate for that period is 1 in 2250, while the mean risk estimate is 1 in 1450. Indirect effects arose because those who contracted Covid-19 on US airplanes could in turn infect others.

To focus or not: investigating the viability of the “focused factory” concept in firms facing service disruptions

PurposeIn this paper, the authors draw from the concept of a “focused factory” to examine whether a focused strategy provides superior performance over a non-focused strategy in firms experiencing service disruptions.Design/methodology/approachThe authors test their hypotheses using panel data of the US domestic airline industry from 1998 to 2019.FindingsOverall, the study findings show that a focused strategy provides superior financial performance over a non-focused strategy in both stable environments and unpredictable environments. The authors also find that the effect of service disruptions on profitability is less pronounced for firms following a focused strategy. This shows that focused firms need to grow over time to sustain profitability. Their post hoc analysis shows that for a non-focused strategy (but not for a focused strategy), firm size moderates the effect of service disruptions on profitability. This suggests that a firm pursuing a non-focused strategy can mitigate the negative effect of service disruptions by increasing its size.Originality/valueThis is the first study that examines the effectiveness of the focused strategy in mitigating service disruptions. The results provide further support for the effectiveness of the focused strategy in responding to service disruptions in service organizations.

The chaos on US domestic airline passenger demand forecasting caused by COVID-19

The chaos on US domestic airline passenger demand forecasting caused by COVID-19

Routine asymptomatic testing strategies for airline travel during the COVID-19 pandemic: a simulation study

BackgroundRoutine viral testing strategies for SARS-CoV-2 infection might facilitate safe airline travel during the COVID-19 pandemic and mitigate global spread of the virus. However, the effectiveness of these test-and-travel strategies to reduce passenger risk of SARS-CoV-2 infection and population-level transmission remains unknown.MethodsIn this simulation study, we developed a microsimulation of SARS-CoV-2 transmission in a cohort of 100 000 US domestic airline travellers using publicly available data on COVID-19 clinical cases and published natural history parameters to assign individuals one of five health states of susceptible to infection, latent period, early infection, late infection, or recovered. We estimated a per-day risk of infection with SARS-CoV-2 corresponding to a daily incidence of 150 infections per 100 000 people. We assessed five testing strategies: (1) anterior nasal PCR test within 3 days of departure, (2) PCR within 3 days of departure and 5 days after arrival, (3) rapid antigen test on the day of travel (assuming 90% of the sensitivity of PCR during active infection), (4) rapid antigen test on the day of travel and PCR test 5 days after arrival, and (5) PCR test 5 days after arrival. Strategies 2 and 4 included a 5-day quarantine after arrival. The travel period was defined as 3 days before travel to 2 weeks after travel. Under each scenario, individuals who tested positive before travel were not permitted to travel. The primary study outcome was cumulative number of infectious days in the cohort over the travel period without isolation or quarantine (population-level transmission risk), and the key secondary outcome was the number of infectious people detected on the day of travel (passenger risk of infection).FindingsWe estimated that in a cohort of 100 000 airline travellers, in a scenario with no testing or screening, there would be 8357 (95% uncertainty interval 6144–12831) infectious days with 649 (505–950) actively infectious passengers on the day of travel. The pre-travel PCR test reduced the number of infectious days from 8357 to 5401 (3917–8677), a reduction of 36% (29–41) compared with the base case, and identified 569 (88% [76–92]) of 649 actively infectious travellers on the day of flight; the addition of post-travel quarantine and PCR reduced the number of infectious days to 1474 (1087–2342), a reduction of 82% (80–84) compared with the base case. The rapid antigen test on the day of travel reduced the number of infectious days to 5674 (4126–9081), a reduction of 32% (26–38) compared with the base case, and identified 560 (86% [83–89]) actively infectious travellers; the addition of post-travel quarantine and PCR reduced the number of infectious days to 2518 (1935–3821), a reduction of 70% (67–72) compared with the base case. The post-travel PCR alone reduced the number of infectious days to 4851 (3714–7679), a reduction of 42% (35–49) compared with the base case.InterpretationRoutine asymptomatic testing for SARS-CoV-2 before travel can be an effective strategy to reduce passenger risk of infection during travel, although abbreviated quarantine with post-travel testing is probably needed to reduce population-level transmission due to importation of infection when travelling from a high to low incidence setting.FundingUniversity of California, San Francisco.

Wildlife strike cost revelation in the US domestic airline industry

Since the Federal Aviation Administration (FAA) last revisited its wildlife strike disclosure policy in 2009, the American domestic airline industry has undergone a significant increase in concentration. We analyze how the aforementioned shift in market structure has impacted the voluntary repair cost disclosure of US airlines following a damaging wildlife strike event. We also investigate the related relationship between profitability and disclosure using an instrumental variables strategy. Lastly, we examine the interaction between competition and profits. Our results show the probability of large American airlines disclosing direct repair costs after a wildlife strike event are linked to market competition and profitability. These findings could directly inform policies managing the economic burden of wildlife strikes, most importantly, the current voluntary disclosure policy.

Service operations to analyse cooperative and non-cooperative competition

This study addresses two kinds of competitive behaviour simultaneously: one from action – mobility barriers vs. the other, from reaction – mutual forbearance. We study service frequency and pricing strategy that the US domestic airlines have used against rivals. We attempt to show whether deliberately aggressive strategic action necessarily serves its purpose to deter rivals, or inadvertently stimulates retaliatory reaction. The Pearson correlation statistical method was employed to analyse the relationship between service frequency and price dispersion based on 79,080 observations of real time panel population data over the period of 1–30 September 2016, where the results were compared to the effects of mutual forbearance. The findings reveal that value contributed to coalitions by rivals from stronger leagues cannot overpower the effects of industry structure. On the other hand, collective security is a rational defence for weaker leagues to sustain their performance.

Competitive dynamics across strategic groups: a literature review and validation by quantitative evidence of operation data

This research intends to: 1) critically evaluate and summarise recent years' literature of competitive dynamics across strategic groups in terms of competition mechanisms, particularly focusing on mobility barriers, multimarket contact and mutual forbearance; 2) validate the aforementioned competition mechanisms by analysing operation data, explicitly, inventory and pricing strategy from the US domestic airline industry; 3) offer explanations to inconsistencies revealed from the quantitative evidence to provide a better understanding of these competition mechanisms.

Protecting strategically vulnerable markets through inventory pooling: a by-product of coordinated effects induced by horizontal post-merger

This empirical study explores the relationship between inventory fluctuations and coordinated effects induced by horizontal post-mergers in the service industry. Using US domestic airline industry, an industry that commits to a rigid inventory capacity and heavily relies on endogenous mobility barriers in competition, as an example, the investigation analyses 284,610 observations of real time longitudinal population data collected from service frequencies and price dispersions over the four identical periods of September 1 through 30, 2012, 2014, 2016 and 2017. The finding uncovers: 1) no evidence of expected inventory reduction or build-up after mergers; 2) the competition ecology is reshuffled and the stiff system of mobility barriers is facing a new challenge posed by rival strategic groups; 3) since no apparent market expansion is present after the occurrence of three mergers in the industry, rival groups diverted overlapped inventories to newly found strategically vulnerable markets. These results suggest endogenous mobility barriers may hinder the realisation of post-merger synergistic gains or neutralise difficulties of operational consolidation.

Competitive dynamics across strategic groups: a literature review and validation by quantitative evidence of operation data

This research intends to: 1) critically evaluate and summarise recent years' literature of competitive dynamics across strategic groups in terms of competition mechanisms, particularly focusing on mobility barriers, multimarket contact and mutual forbearance; 2) validate the aforementioned competition mechanisms by analysing operation data, explicitly, inventory and pricing strategy from the US domestic airline industry; 3) offer explanations to inconsistencies revealed from the quantitative evidence to provide a better understanding of these competition mechanisms.

Multi-period efficiency and productivity changes in US domestic airlines

This study tracked the static efficiency and dynamic productivity changes of 14 US airlines from 2006 to 2015. Moreover, we estimated the principal economic drivers of the environmental variables to increase the US domestic airlines' efficiency using the double bootstrap regression analysis. The major aspects of this study are as follows: First, network legacy carriers have the highest efficiency, whereas low-cost carriers are lowest. Nonetheless, network legacy carriers still have room to improve scale inefficiency. Second, the fluctuations in technical change, rather than in efficiency change, tended to have greater effect on the fluctuation of Malmquist productivity index for US domestic airlines. Third, M&A between US airlines have both positive and negative effects in terms of efficiency and economies of scale. Fourth, cost environmental factors have a negative effect on US airlines' efficiency, while revenue factor is a positive effect. The results of this study may help US airline industry practitioners to understand the US domestic airline environment from an operator's perspective.

Fueling for contingencies: The hidden cost of unpredictability in the air transportation system

The aviation community is increasing its attention on the concept of predictability when conducting aviation service quality assessments. Reduced fuel consumption and the related cost is one of the various benefits that could be achieved through improved flight predictability. A lack of predictability may cause airline dispatchers to load more fuel onto aircraft before they depart; the flights would then in turn consume extra fuel just to carry excess fuel loaded. In this study, we employ a large dataset with flight-level fuel loading and consumption information from a major US airline. With these data, we estimate the relationship between the amount of loaded fuel and flight predictability performance using a statistical model. The impact of loaded fuel is translated into fuel consumption and, ultimately, fuel cost and environmental impact for US domestic operations. We find that a one-minute increase in the standard deviation of airborne time leads to a 0.88min increase in loaded contingency fuel and 1.66min in loaded contingency and alternate fuel. If there were no unpredictability in the aviation system, captured in our model by eliminating standard deviation in flight time, the reduction in the loaded fuel would between 6.12 and 11.28min per flight. Given a range of fuel prices, this ultimately would translate into cost savings for US domestic airlines on the order of $120–$452million per year.

A Book, the Application, and the Outcomes: How Right Was Alfred Kahn in The Economics of Regulation About the Effects of the Deregulation of the US Domestic Airline Market?

This article is concerned with the foresights that Alfred Kahn had when he led the deregulation of the US passenger airline industry, and in particular with the role the ideas in his Economics of Regulation played in his actions. Kahn was a reluctant deregulator of the US interstate airline industry. The 1978 Airline Deregulation Act, which he “fathered,” however, not only ushered in a wave of other similar actions both within and outside of transportation in the United States, but also provided a demonstration effect that resulted in a more general rolling back of microeconomic regulation across the globe. Kahn was head of the US Civil Aeronautics Board for only eighteen months or so, but he brought about considerable changes to the airline industry and, through its spread effects, to all other modes of transportation. Here we focus on the degree to which he actually foresaw, or at least generally predicted, what the outcome of airline deregulation would be. While Kahn himself acknowledged that market outcomes are, almost by definition, unpredictable, he clearly had some ideas of what the results of his would be. Here we look at what he thought would happen, what did happen, and at whether his own short term ex post assessment of outcomes has been of durable accuracy.

Examining Differences in Short-Haul and Long-Haul Markets in US Commercial Airline Passenger Demand

Abstract This article examines the demand for US domestic airline passenger transportation as it pertains to short-haul markets of 500 miles or less, and compares it to the demand in long-haul markets of longer than 500 miles. We investigate how a variety of factors impact passenger volumes, depending on route distance, using a panel set of quarterly data from 1995 to 2010. We find that changes in security screening times, price differences between air travel and automobile travel, and market concentration levels affect short-haul and long-haul markets in statistically different ways, while the impact of low-cost carriers on passenger volumes affects both markets identically.

Modelling airline flight cancellation decisions

In order to predict airline responses to Traffic Management Initiatives (TMIs), and reveal the underlying preference structures that shape these responses, we study US domestic airlines’ cancellation decisions in response to the Federal Aviation Administration (FAA)’s TMIs, in particular, to Ground Delay Programs (GDPs). By observing the actual flight-cancellation choices made by airline dispatchers, the airlines’ cancellation utility functions can be inferred through the use of binary choice models. The model captures how delays to a given flight and potential delay savings to other flights affect flight cancellation decisions. We also find larger, fuller, less frequent, shorter-distance, and spoke-bound flights are less likely to be cancelled, and that there is inter-airline variation in flight cancellation behaviour.

City-Pairs Versus Airport-Pairs: A Market-Definition Methodology for the Airline Industry

This paper provides a methodology for deciding which airports warrant grouping in multi-airport metropolitan areas. The methodology is based on the comparability of incremental competition effects from nearby airports on average fares at a metropolitan area’s primary airport. Results from a quarterly panel data set for the period 2003–2009 provide strong evidence that city-pairs, rather than airport-pairs, are the appropriate market definition for analyses of passenger air transportation involving many (but not all) large metropolitan areas. Based on the proposed method, we offer a recommended list of airports that should be grouped when creating city-pairs for the analysis of competition in the US domestic airline industry.

The Competitive Environment of the US Domestic Airline Industry in 2010

The competitive landscape of the U.S. domestic airlines dramatically changed when the industry was deregulated in 1978. While airline traffic and revenues grew exponentially, aided by unfettered market competition and resulting efficiency, airline profitability had mostly stayed lackluster due to cost pressures, chronic oversupply of seats, and intense price-based rivalry to fill seats. Thirty-two years into deregulation, the major airlines were still searching for the Holy Grail that would defend them against industry threats and deliver sustained profitability. This case describes the evolution of the U.S. domestic airline industry over the years, the cost pressures and revenue uncertainties airlines faced at the beginning of 2010, and the strategic options they were contemplating to effectively deal with these issues. The options ranged from shaping the industry structure to achieving differentiation through service offerings. The exact choices they made would determine their survival and long-term success.

Effects of transport service differentiation in the US domestic airline market

This study proposes a framework to identify and measure the extent of product differentiation among services provided by transportation firms, and applies it to the US domestic airline markets. By formulating and estimating an Almost Ideal Demand System and a set of price response equations for competing carriers, we investigate empirically the degree of substitutability between the services provided by Full Service Airlines (FSAs) and Low Cost Carriers (LCCs). Our results indicate that there is a significant differentiation in services provided by FSAs and LCCs. As a result, the presence of LCCs alone will not ensure healthy competition in a market. Therefore, it is important for public policy makers to attempt to maintain competition between FSAs even in the markets where LCCs have substantial market shares.

Investigating the effects of economies of scope on firms’ pricing behavior: Empirical evidence from the US domestic airline industry

This study investigates to what extent cross-product (belly cargo) output affects (passenger ticket) prices in the US domestic airline industry. The empirical analysis indicates that greater cargo volumes generally result in lower air fares, presumably as a result of the airlines’ realization of economies of scope. This magnitude of this price effect, however, depends on certain firm and route market characteristics. The findings of this study add to extant research on economies of scope, multi-product yield management and airline pricing and provide important insights for policy makers and airline managers alike.