Ebook: The Effects of Deregulation on U.S. Air Networks

1. 1 A Brief History of U. S. Commercial Aviation Regulation and Deregulation The U. S. commercial aviation industry was regulated by the government for a period of 40 years, beginning in 1938 with. the passing of the Federal Aviation Act, and ending in October 1978 when President Carter signed into law the Airline Deregulation Act (ADA). There were 16 airlines in existence when the Federal Aviation Act was passed in 1938 (the so-called 'trunk lines'). The Act established the Civil Aeronautics Authority (CAA) as the industry's regulatory body. The Act was passed principally because it was felt that the free market, if allowed to continue unregulated for much longer, would put many of these firms into bankruptcy. It is possible therefore to view the CAA of 1938 (re-organized into the Civil Aeronautics Board (CAB) in 1940) as a response to a potential market failure at the time. In the 1930s, few air traffic markets could have efficiently"supported more than one airline operating in the market [Panzar (1980)]. Competition among the carriers was cut-throat, and it was felt that the near bankruptcy of the airlines in the period was caused principally by the competitive bidding system used by the Post Office in allotting airmail subsidies [Keeler (1972), Caves (1962)].

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The main aims of this books are to (a) assess and quantify the impact of U.S. air carrier network changes over the last 20 years; (b) develop an economic model of the airline firm taking explicit account of the role of network structure and organisation; (c) empirically test the model and use it to assess the relative efficiency of routes within a major U.S. carrier`s domestic system. Statistical measures such as the Gini index and entropy measure are used to assess changes in U.S. carrier networks from 1969-88. The economic model of the airline firm incorporates Gravity model estimates of potential air traffic flows on each route as a `network variable`. By specifying a spatial autoregressive form for the model, the interdependence of each route (and accordingly, the indirect/connecting passenger potential) may be included. The model is tested using an extensive route by route data set obtained from Continental Airlines for the year 1987/88. Using frontier production functions, technical efficiency of the routes is evaluated and the characteristics of efficient and inefficient routes are described. In the book, the key role of the airline's network is high- lighted and readers are offered a new view of the firm which focuses this important component.

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The main aims of this books are to (a) assess and quantify the impact of U.S. air carrier network changes over the last 20 years; (b) develop an economic model of the airline firm taking explicit account of the role of network structure and organisation; (c) empirically test the model and use it to assess the relative efficiency of routes within a major U.S. carrier`s domestic system. Statistical measures such as the Gini index and entropy measure are used to assess changes in U.S. carrier networks from 1969-88. The economic model of the airline firm incorporates Gravity model estimates of potential air traffic flows on each route as a `network variable`. By specifying a spatial autoregressive form for the model, the interdependence of each route (and accordingly, the indirect/connecting passenger potential) may be included. The model is tested using an extensive route by route data set obtained from Continental Airlines for the year 1987/88. Using frontier production functions, technical efficiency of the routes is evaluated and the characteristics of efficient and inefficient routes are described. In the book, the key role of the airline's network is high- lighted and readers are offered a new view of the firm which focuses this important component.
Content:
Front Matter....Pages I-XIV
Introduction....Pages 1-12
Previous Studies on U.S. Airline Deregulation....Pages 13-31
The Setting: Trends in U.S. Commercial Aviation....Pages 32-66
Development of a Production Model of the Airline Firm....Pages 67-81
Data Description and Computation of the Production Variables....Pages 82-104
Production Function Analysis of Continental Airlines....Pages 105-116
Conclusions and Recommendations....Pages 117-122
Back Matter....Pages 123-131

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The main aims of this books are to (a) assess and quantify the impact of U.S. air carrier network changes over the last 20 years; (b) develop an economic model of the airline firm taking explicit account of the role of network structure and organisation; (c) empirically test the model and use it to assess the relative efficiency of routes within a major U.S. carrier`s domestic system. Statistical measures such as the Gini index and entropy measure are used to assess changes in U.S. carrier networks from 1969-88. The economic model of the airline firm incorporates Gravity model estimates of potential air traffic flows on each route as a `network variable`. By specifying a spatial autoregressive form for the model, the interdependence of each route (and accordingly, the indirect/connecting passenger potential) may be included. The model is tested using an extensive route by route data set obtained from Continental Airlines for the year 1987/88. Using frontier production functions, technical efficiency of the routes is evaluated and the characteristics of efficient and inefficient routes are described. In the book, the key role of the airline's network is high- lighted and readers are offered a new view of the firm which focuses this important component.
Content:
Front Matter....Pages I-XIV
Introduction....Pages 1-12
Previous Studies on U.S. Airline Deregulation....Pages 13-31
The Setting: Trends in U.S. Commercial Aviation....Pages 32-66
Development of a Production Model of the Airline Firm....Pages 67-81
Data Description and Computation of the Production Variables....Pages 82-104
Production Function Analysis of Continental Airlines....Pages 105-116
Conclusions and Recommendations....Pages 117-122
Back Matter....Pages 123-131
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