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Airport–airline vertical relationships, their effects and regulatory policy implications

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  • Fu, Xiaowen
  • Homsombat, Winai
  • Oum, Tae H.
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    Abstract

    This paper examines the forms and effects of vertical relationships between airports and airlines with a focus on the North American and European aviation markets. We find that such vertical relationships enables those participating to achieve various benefits and may be formed as a competitive response to other competing airport–airline alliances. In some cases, vertical airport–airline relationships strengthen the hub status of major airports, leading to increased employment and service quality in local markets. On the other hand, preferential treatment of a particular airline by an airport may enhance that airline’s market power, allowing it to dominate the airport and charge hub premiums. The competition and welfare implications of airport–airline vertical alliances can be complicated and two-sided, subject to the influences of other factors such as the market structures of the airline and airport markets.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Air Transport Management.

    Volume (Year): 17 (2011)
    Issue (Month): 6 ()
    Pages: 347-353

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    Handle: RePEc:eee:jaitra:v:17:y:2011:i:6:p:347-353

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    Web page: http://www.journals.elsevier.com/journal-of-air-transport-management/

    Related research

    Keywords: Airport–airline relationship; Vertical cooperation; Airport economics;

    References

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    1. Barbot, Cristina, 2006. "Low-cost airlines, secondary airports, and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement," Journal of Air Transport Management, Elsevier, vol. 12(4), pages 197-203.
    2. Jia Yan & Xiaowen Fu & Tae Oum, 2008. "Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines," Working Papers 2008-21, School of Economic Sciences, Washington State University.
    3. Zhang, Anming & Fu, Xiaowen & Yang, Hangjun (Gavin), 2010. "Revenue sharing with multiple airlines and airports," Transportation Research Part B: Methodological, Elsevier, vol. 44(8-9), pages 944-959, September.
    4. Barbot, Cristina, 2009. "Airport and airlines competition: Incentives for vertical collusion," Transportation Research Part B: Methodological, Elsevier, vol. 43(10), pages 952-965, December.
    5. Xiaowen Fu & Anming Zhang, 2010. "Effects of Airport Concession Revenue Sharing on Airline Competition and Social Welfare," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 44(2), pages 119-138, May.
    6. Lijesen, Mark G. & Rietveld, Piet & Nijkamp, Peter, 2001. "Hub premiums in European civil aviation," Transport Policy, Elsevier, vol. 8(3), pages 193-199, July.
    7. Cristina Barbot, 2009. "Vertical Contracts between Airports and Airlines: is there a Trade-off between Welfare and Competitiveness?," CEF.UP Working Papers 0901, Universidade do Porto, Faculdade de Economia do Porto.
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    11. Xiaowen Fu & Mark Lijesen & Tae H. Oum, 2006. "An Analysis of Airport Pricing and Regulation in the Presence of Competition Between Full Service Airlines and Low Cost Carriers," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 40(3), pages 425-447, September.
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    16. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    17. Albers, Sascha & Koch, Benjamin & Ruff, Christine, 2005. "Strategic alliances between airlines and airports—theoretical assessment and practical evidence," Journal of Air Transport Management, Elsevier, vol. 11(2), pages 49-58.
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    Cited by:
    1. Lau, Yui Yip & Lei, Zheng & Fu, Xiaowen & Ng, Adolf K.Y., 2012. "The implications of the re-establishment of direct links across the Taiwan Strait on the aviation industries in Greater China," Research in Transportation Economics, Elsevier, vol. 35(1), pages 3-12.
    2. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2013. "Demand uncertainty and airport capacity choice," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 91-104.
    3. Wang, Kun & Gong, Qiang & Fu, Xiaowen & Fan, Xingli, 2014. "Frequency and aircraft size dynamics in a concentrated growth market: The case of the Chinese domestic market," Journal of Air Transport Management, Elsevier, vol. 36(C), pages 50-58.
    4. Fu, Xiaowen & Zhang, Anming & Lei, Zheng, 2012. "Will China’s airline industry survive the entry of high-speed rail?," Research in Transportation Economics, Elsevier, vol. 35(1), pages 13-25.
    5. Adler, Nicole & Gellman, Aaron, 2012. "Strategies for managing risk in a changing aviation environment," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 24-35.

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