Measuring the impact of network changes by the airlines in the deregulated environment

Abstract

Recent literature in economics has failed to focus or take adequate account of the role of airline networks. In this dissertation the network is examined at the national/industry level, and also at the individual firm level. Statistical measures which capture pertinent characteristics of an airline's network are proposed and used to assess the extent of carrier network changes since deregulation, and the impact of these changes on the national airways system. It is concluded that the airlines' propensity to concentrate traffic at a number of key 'hub' nodes was very much in evidence before deregulation, and since 1978, this trend has become more exaggerated. At the firm level, the network is formally included in an economic production model, and system-wide estimates of route production functions are made. The network variable is shown to be an important input in the production process. The model captures the joint product nature of the production process by estimating with a spatial autoregressive model. Frontier production estimates are compared with observed output levels, and characteristics of efficient routes are detailed.