Scheduled service versus personal transportation: The role of distance

a r t i c l e i n f o JEL classification: L13 L2 L93 Keywords: Short-haul routes Long-haul routes Flight frequency Distance This paper presents a theoretical and empirical analysis of the relationship between frequency of scheduled transportation services and their substitutability with personal transportation (using distance as a proxy). We study the interaction between a monopoly firm providing a high-speed scheduled service and private transportation (i.e., car). Interestingly, the carrier chooses to increase the frequency of service on longer routes when competing with personal transportation because by providing higher frequency (at extra cost) it can also charge higher fares which can boost its profits. However, in line with the results of earlier studies, frequency decreases for longer flights when driving is not a viable option. An empirical application of our analysis to the European airline industry confirms the predictions of our theoretical model. A problem faced by companies providing scheduled transportation (airlines, railway companies, etc.) is that it is impossible to achieve the level of mobility offered by the use of a private vehicle. Customers traveling by car do not have to bear a schedule delay cost inherent to the limited choice of departure times that characterizes scheduled services. However, providers of scheduled transportation can make their product more attractive when competing with consumers' personal vehicles by offering high-frequency, high-speed services. There are also cases in which driving is not a relevant alternative (when the distance between the endpoints is particularly long), and in this case a scheduled carrier has to make its service attractive with respect to the option of not traveling at all. These two problems may have different solutions; however, no differentiation between them has been offered in the literature. This paper fills this void by examining fare and frequency choices of a monopoly provider of scheduled transportation services. We compare the case where the customer's next best available alternative is driving with the scenario where driving is not a relevant option (i.e., it is a dominated alternative). The model yields testable predictions regarding frequency–distance relationships, which we put to the test using data from the European airline industry (where services are provided by a single carrier on over 60% of airport-pair markets). In the theoretical part, we model a carrier (which we will consider to be an airline, although the analysis is easily applicable to high-speed rail as well) choosing fares and frequency …