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The effect of rail travel time on airline fares: First evidence from the Italian passenger market

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  • Capozza, Claudia

Abstract

The empirical evidence shows that travel time is crucial for rail transport to be a competitor to air transport. However, there are no papers testing whether travel time has a direct effect on airline pricing. This paper is a step towards filling this gap. We test and quantify the effect of rail travel time on airline fares, using unique data at flight-level. We find that airlines design pricing strategies taking into consideration the travel time of competing rail transport service. Airlines are found to set, on average, higher fares as rail travel time increases. However, the competitive pressure induced by rail travel time is perceived by airlines only as the day of departure gets closer: from the 40th to the day before departure it increases while it gradually decreases as the departure date gets further away.

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  • Capozza, Claudia, 2016. "The effect of rail travel time on airline fares: First evidence from the Italian passenger market," Economics of Transportation, Elsevier, vol. 6(C), pages 18-24.
    • Handle: RePEc:eee:ecotra:v:6:y:2016:i:c:p:18-24
    DOI: 10.1016/j.ecotra.2016.06.002
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    Cited by:

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    2. Zhang, Rui & Johnson, Daniel & Zhao, Weiming & Nash, Chris, 2019. "Competition of airline and high-speed rail in terms of price and frequency: Empirical study from China," Transport Policy, Elsevier, vol. 78(C), pages 8-18.
    3. Wang, Kun & Xia, Wenyi & Zhang, Anming & Zhang, Qiong, 2018. "Effects of train speed on airline demand and price: Theory and empirical evidence from a natural experiment," Transportation Research Part B: Methodological, Elsevier, vol. 114(C), pages 99-130.
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    5. Min Su & Weixin Luan & Zeyang Li & Shulin Wan & Zhenchao Zhang, 2019. "Evolution and Determinants of an Air Transport Network: A Case Study of the Chinese Main Air Transport Network," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    6. Yang, Hangjun & Ma, Wenliang & Wang, Qiang & Wang, Kun & Zhang, Yahua, 2020. "Welfare implications for air passengers in China in the era of high-speed rail," Transport Policy, Elsevier, vol. 95(C), pages 1-13.
    7. Xia, Wenyi & Zhang, Anming, 2016. "High-speed rail and air transport competition and cooperation: A vertical differentiation approach," Transportation Research Part B: Methodological, Elsevier, vol. 94(C), pages 456-481.
    8. Su, Min & Luan, Weixin & Sun, Tianyao, 2019. "Effect of high-speed rail competition on airlines’ intertemporal price strategies," Journal of Air Transport Management, Elsevier, vol. 80(C), pages 1-1.
    9. Zhang, Anming & Wan, Yulai & Yang, Hangjun, 2019. "Impacts of high-speed rail on airlines, airports and regional economies: A survey of recent research," Transport Policy, Elsevier, vol. 81(C), pages 1-19.
    10. Borsati, Mattia & Albalate, Daniel, 2020. "On the modal shift from motorway to high-speed rail: evidence from Italy," Transportation Research Part A: Policy and Practice, Elsevier, vol. 137(C), pages 145-164.
    11. Gaggero, Alberto A. & Ogrzewalla, Lukas & Bubalo, Branko, 2019. "Pricing of the long-distance bus service in Europe: The case of Flixbus," Economics of Transportation, Elsevier, vol. 19(C), pages 1-1.
    12. Gremm, Cornelia, 2018. "The effect of intermodal competition on the pricing behaviour of a railway company: Evidence from the German case," Research in Transportation Economics, Elsevier, vol. 72(C), pages 49-64.
    13. Beria, Paolo & Bertolin, Alberto, 2019. "Evolving long-distance passenger services. Market concentration, fares and specialisation patterns in Italy," Research in Transportation Economics, Elsevier, vol. 74(C), pages 77-92.
    14. Seidenglanz, Daniel & Taczanowski, Jakub & Król, Marcin & Horňák, Marcel & Nigrin, Tomáš, 2021. "Quo vadis, international long-distance railway services? Evidence from Central Europe," Journal of Transport Geography, Elsevier, vol. 92(C).
    15. Li, Xue-yan & Li, Xue-mei & Li, Xue-wei & Qiu, He-ting, 2017. "Multi-agent fare optimization model of two modes problem and its analysis based on edge of chaos," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 405-419.
    16. Daniel Albalate & Mattia Borsati, 2019. "“On the modal shift from motorway to high-speed rail: evidence from Italy”," IREA Working Papers 201910, University of Barcelona, Research Institute of Applied Economics, revised Jun 2019.
    17. Carlos Augusto Olarte Bacares & Julien Brunel & Damien Sigaud, 2019. "Influence of the evolution of high-speed railway infrastructure on the success of Italian liberalization," Competition and Regulation in Network Industries, , vol. 20(2), pages 113-137, June.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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