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Airport leakage and airline pricing strategy in single-airport regions

Author

Listed:
  • Suzuki, Yoshinori
  • Crum, Michael R.
  • Audino, Michael J.

Abstract

Travelers residing in communities having either small or medium-sized airports often avoid using the local airports in their regions, and use other (out-of-region) airports to take advantage of lower fares and more convenient airline services. This phenomenon is generally referred to as airport leakage. Airport leakage can exist even in regions where the nearest substitute (airport) is over 150 miles away (i.e., in single-airport regions). This paper argues that airlines may have under-estimated the airport-leakage tendencies of travelers in single-airport regions, and consequently their current airfares in these regions may be higher than the optimal, or revenue-maximizing, levels. To test the validity of this argument, a simulation experiment was conducted by using the data for Des Moines International Airport (DSM), a medium airport serving the single-airport region in central Iowa (USA). The results imply that, for most airlines, current airfares in DSM may be higher than the optimal, and that they may increase revenues (or profits) by reducing airfares in DSM.

Suggested Citation

  • Suzuki, Yoshinori & Crum, Michael R. & Audino, Michael J., 2004. "Airport leakage and airline pricing strategy in single-airport regions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(1), pages 19-37, January.
    • Handle: RePEc:eee:transe:v:40:y:2004:i:1:p:19-37
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    Cited by:

    1. Mueller, Falko, 2021. "Accessibility for money? An evaluation of subsidized air transport services in Europe and the United States," Transport Policy, Elsevier, vol. 106(C), pages 153-164.
    2. Gao, Yi, 2020. "Estimating the sensitivity of small airport catchments to competition from larger airports: A case study in Indiana," Journal of Transport Geography, Elsevier, vol. 82(C).
    3. Bergantino, Angela Stefania & Intini, Mario & Volta, Nicola, 2021. "The spatial dimension of competition among airports at the worldwide level: a spatial stochastic frontier analysis," European Journal of Operational Research, Elsevier, vol. 295(1), pages 118-130.
    4. Sun, Xiaoqian & Wandelt, Sebastian & Hansen, Mark & Li, Ang, 2017. "Multiple airport regions based on inter-airport temporal distances," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 84-98.
    5. Ray Sturm & Drew Winters, 2009. "Does time have value? An empirical examination of the put option embedded in refundable U.S. air fares," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(4), pages 376-392, October.
    6. Kim, Amy M. & Ryerson, Megan S., 2018. "A long drive: Interregional airport passenger “leakage” in the U.S," Tourism Management, Elsevier, vol. 65(C), pages 237-244.
    7. Bergantino, Angela Stefania & Intini, Mario & Volta, Nicola, 2020. "Spatial competition and efficiency: an investigation in the airport sector," The Warwick Economics Research Paper Series (TWERPS) 1287, University of Warwick, Department of Economics.
    8. Ryerson, Megan S. & Kim, Amy M., 2018. "A drive for better air service: How air service imbalances across neighboring regions integrate air and highway demands," Transportation Research Part A: Policy and Practice, Elsevier, vol. 114(PA), pages 237-255.
    9. Takebayashi, Mikio, 2015. "Multiple hub network and high-speed railway: Connectivity, gateway, and airport leakage," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 55-64.
    10. Nakagawa, Dai & Aoyama, Yoshitaka & Ito, Tadashi & Nishizawa, Hiroyuki, 2005. "Assessment of passenger benefits brought about by international airport projects," Transport Policy, Elsevier, vol. 12(6), pages 512-524, November.
    11. Elwakil, Omar Sherif & Windle, Robert J. & Dresner, Martin E., 2013. "Transborder demand leakage and the US–Canadian air passenger market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 57(C), pages 45-57.
    12. Gudmundsson, Sveinn & Paleari, Stefano & Redondi, Renato, 2014. "Spillover effects of the development constraints in London Heathrow Airport," Journal of Transport Geography, Elsevier, vol. 35(C), pages 64-74.
    13. Matisziw, T.C. & Grubesic, T.H., 2010. "Evaluating locational accessibility to the US air transportation system," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(9), pages 710-722, November.
    14. Fuellhart, Kurt & O’Connor, Kevin & Woltemade, Christopher, 2013. "Route-level passenger variation within three multi-airport regions in the USA," Journal of Transport Geography, Elsevier, vol. 31(C), pages 171-180.
    15. Fu, Qian & Kim, Amy M., 2016. "Supply-and-demand models for exploring relationships between smaller airports and neighboring hub airports in the U.S," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 67-79.
    16. Elwakil, Omar S. & Dresner, Martin, 2013. "Low-cost carriers and Canadian traffic generation at US border airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 68-72.
    17. Grubesic, Tony H. & Matisziw, Timothy C. & Murray, Alan T., 2012. "Assessing geographic coverage of the essential air service program," Socio-Economic Planning Sciences, Elsevier, vol. 46(2), pages 124-135.
    18. Stone, Matthew J., 2016. "Reliability as a factor in small community air passenger choice," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 161-164.
    19. Nucciarelli, Alberto & Gastaldi, Massimo, 2009. "Collaboration in the airport business through the development of an IT platform," International Journal of Production Economics, Elsevier, vol. 121(2), pages 562-573, October.
    20. Wei, Fangwu & Grubesic, Tony H., 2015. "The dehubbing Cincinnati/Northern Kentucky International Airport (CVG): A spatiotemporal panorama," Journal of Transport Geography, Elsevier, vol. 49(C), pages 85-98.
    21. Wang Liao & Xiaoshu Cao & Shengchao Li, 2019. "Competition and Sustainability Development of a Multi-Airport Region: A Case Study of the Guangdong–Hong Kong–Macao Greater Bay Area," Sustainability, MDPI, vol. 11(10), pages 1-21, May.

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