Air Transport and High Speed Railway: How Would Collaboration Affect Service Performance?

This chapter examines the airline performance effect arising from collaboration between airlines and high speed railway (HSR). The analysis presents scenario simulations using a bi-level model, which takes into account the effect of competition among airlines and HSR. Using real data, we examine the Japanese domestic market and the Japan-based international market: the markets consist of Tokyo Metropolitan Area, Osaka Metropolitan Area, Seoul/Korea, Frankfurt/Germany, Paris/France, London/United Kingdom, and Los Angeles/United States. Analysis of the domestic market assumes airlines and HSR compete against each other, and analysis of the international market assumes airlines only compete with each other. Initially, we conduct performance analysis using a simulation that mimics the current relationship between airlines and HSR. Then we present three scenarios for different combinations of collaboration between airline and HSR based on airline alliances. The results from this exercise are then used to examine the impact of the collaboration on the profits of airlines and HSR, passenger’s utility, and the network design of airlines. Last, we show the potential benefit to airlines – profitability, market share, and demand growth – from the airline-HSR collaboration. Our model shows that in Japan: (1) Airlines can improve their profitability in international operations by the collaboration with HSR when airlines set their hubs so they can connect to HSR; (2) The airline which has a lower unit operating cost than rivals and sets its hubs to connect to HSR can improve its joint profit with HSR through collaboration; (3) Airlines that don’t operate domestic flights and don’t set their hubs to connect to HSR encourage increased fare competition by coordinating with HSR, but their profit decreases. Whether these results are generalizable to other regions should be the subject of future study.