Competitive fare and frequency effects in airport market share modeling

Abstract

Previous efforts to model the distribution of passenger traffic between airports in a multi-airport system have focused on 'catchment areas' associated with competing airports, which generally do not change in the short to medium term. Since deregulation of US airline markets, however, there have been substantial shifts in airport market shares as a result of changes in relative airline fares and service frequency at competing airports serving the same metropolitan area. In this paper, we develop and estimate an airport market share model based on the dynamics of airline pricing and frequency decisions, which can in fact vary dramatically over time. We argue that the distribution of traffic between competing airports is modeled most correctly at the level of the origin-destination market, as a function of relative fares charged by airlines at each airport and the effective frequency of service in the O-D market from each airport. The statistical estimation of price and time elasticities for several case studies demonstrates the importance of including these airline supply decisions in the modeling of airport market shares.