Michael W. Tretheway

Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ

There has been a perception that U.S. trunk airlines had an inherent cost advantage over smaller regional airlines because of economies of scale. We have formulated a general model of airline costs, which we estimate by using panel data on large and small airlines. Differences in scale are shown to have no role in explaining higher costs for small airlines. The primary factor explaining cost differences is density of traffic within an airlines network. Also of major importance is the average length of individual flights.

Allocation of Airline Seats between Stochastically Dependent Demands

This paper examines the problem of allocating airline seats between two nested fare classes when the demands for the classes are stochastically dependent. The well known simple seat allotment formula of Littlewood which requires the assumption of statistical independence between demands is generalized to a formula which requires only a much weaker monotonic association assumption. The model employed here is also used to examine the problems of full fare passenger spillage and passenger upgrades from the discount class.

Addressing Uncertainty about Future Airport Activity Levels in Airport Decision Making

This report provides a guidebook on how to develop air traffic forecasts in the face of a broad range of uncertainties. It is targeted at airport operators, planners, designers, and other stakeholders involved in planning, managing, and financing of airports, and it provides a systems analysis methodology that augments standard master planning and strategic planning approaches. This methodology includes a set of tools for improving the understanding and application of risk and uncertainty in air traffic forecasts as well as for increasing overall effectiveness of airport planning and decision making. In developing the guidebook, the research team studied existing methods used in traditional master planning as well as methods that directly address risk and uncertainty, and based on that fundamental research, they created a straightforward and transparent systems analysis methodology for expanding and improving traditional planning practices, applicable through a wide range of airport sizes. The methods presented were tested through a series of case study applications that also helped to identify additional opportunities for future research and long-term enhancements.

Reregulation of the airline industry: could price cap regulation play a role?

Almost 20 years after passage of the US Airline Deregulation Act, air transport regulatory liberalization has made inroads on all continents. But even as deregulation is still spreading, there are also calls for some form of re-regulation. The reasons are diverse and not necessarily consistent. Mergers and alliances raise fears of monopoly power, especially concerning ‘fortress hubs’ where dominant carriers can charge higher prices. The opposite concern arises from the massive financial losses which have accompanied the deregulated era. Competition appears ‘destructive,’ in modern parlance, an ‘empty core,’ there may be no sustainable set of prices to permit normal profits under competition, hence a danger of instability in the absence of reregulation. But the history of price and entry controls and rate of return regulation in airlines is not encouraging, indeed that is why deregulation came about. This paper explores the potential role of a more recent regulatory model – price cap regulation – applied to airlines. The paper concludes that price cap regulation would not be the answer, it is a regulatory form intended to restrain monopoly pricing, which is less of a problem in airlines than providing stability in an unstable oligopoly industry.

Costing the Movement of Hazardous Materials by Rail

Determining the costs of hazardous materials (hazmat) transportation is an important component in understanding the economics of hazmats. This paper provides an overview of the steps involved in determining the costs associated with hazmat transportation by rail and in particular comments on the suitability of the Interstate Commerce Commission’s Uniform Rail Costing System (URCS) for hazmats.

Airline Cost and Performance: Implications for Public and Industry Policies

Part I puts the research undertaken in this study in the context of an industry and an institutional setting. Part II describes the structure of the Canadian airline industry and its major carriers, along with a brief description of the data base used for this study. Descriptive statistics are presented which reveal major trends in the structure of the industry and the carriers. Part III investigates the economic performance of the Canadian airlines. The performance measure used is Total Factor Productivity, the output per unit of total resources expended. Part IV looks at airline costs in more detail. Part V presents the conclusions of the study. Policy implications of the empirical results obtained from the cost structure and the Total Factor Productivity analysis are discussed, followed by a general discussion of the regulatory policy implications of the empirical results.