Enhancing the Performance of the Deregulated Air Transportation System

Abstract

IN A DRAMATIC BREAK with past policy, the U.S. commercial air transportation system was deregulated in 1978. Although deregulation was initially popular, primarily because it led to lowerfares, public uneasiness has recently set in.1 Airport congestion and flight delays, increased concerns with safety, and rising fares in less competitive markets have all been attributed to the change in the regulatory environment. But, as illustrated in figure 1, deregulation is only one among many influences on the air transportation system. Equally influential are technological change, macroeconomic performance, and public policies besides those having to do with economic regulation. Because all these influences are interdependent, each must operate in accord with the others or the system can become disrupted. This paper focuses on improving the air system by aligning public policy regarding mergers, airport pricing and investment, and safety with the traffic volumes and patterns that exist under deregulation. We We are grateful to Robert Hahn, Richard Johnson, Joan Winston, and the conference participants for their comments and to Leslie Siddeley and Carol Evans for research assistance. 1. The overall decrease in fares is documented in John R. Meyer and Clinton V. Oster, Jr., eds., Airline Deregulation: The Early Experience (Boston: Auburn House, 1981); Elizabeth E. Bailey, David R. Graham, and Daniel P. Kaplan, Deregulating the Airlines (MIT Press, 1985); and Steven Morrison and Clifford Winston, The Economic Effects of Airline Deregulation (Brookings, 1986). 61 2. Air passenger round-trips are from the U.S. Civil Aeronautics Board, Ticket Dollar Value Origin and Destination Data Bank (third quarter, 1983). The final sample consisted of 3,593 round-trips covering the following five randomly selected markets: Allentown

Optimal Pricing of Flights and Passengers at Congested Airports: The Efficiency of Atomistic Charges

“…The parameters and equilibrium outputs are: Airlines' operating cost parameters are from Swan and Adler (2006), using a reference distance of 1.500 km and an adjustment in the per-passenger cost as suggested by the authors. Values of time are from Morrison and Winston (1989), while congestion, delay and demand parameters are set such that equilibrium elasticity with respect to generalized price in both settings is close to -1.146, the mean value of 204 observations reported by Brons et al (2002). Values are set to the same monetary units (U.S. dollars) throughout the calibration process.…”

Regulation, market structure and performance in air passenger transportation

“…They also arise under privileged vertical relations between airlines and ancillary upstream and downstream services, such as computer reservation systems, travel agents, ground handling services etc. (Esperou and Subremon, 1997;Morrison and Winston, 1999). 12.…”

U.S. Industry Adjustment to Economic Deregulation

“…For example, in airline and railroad deregulation, efforts were made to ''protect'' air travelers in rural areas by subsidizing carriers to serve these small communities and to ''protect'' shippers of certain bulk commodities like coal by instituting maximum rate guidelines. In fact, the airline subsidy program reduced carriers' incentives to provide high-quality, low-cost service to small communities (Morrison and Winston, 1986), while maximum rail rate guidelines have had little effect on prices because only a handful of rates have ever been successfully challenged. Another way of providing universal service is to require that large companies cross-subsidize certain users.…”