Competitive Behavior of Airlines at Multiple Airport Systems

The way passenger traffic is distributed at multiple airport systems continues to intrigue air transportation planners, urban planners, and policy-makers as researchers attempt to unravel how airlines, air travelers and airports relate to each other. While previous research efforts have typically concentrated on the air travelers' choice of airports, the current thesis addresses how the competitive behavior of airlines operating in a deregulated environment influences the air traveler's choice of airports and the resulting distribution of passenger traffic in the multiple airport system. The methodology of the research first involves identifying four scenarios under which airlines compete in multiple airport environments, after which an anecdotal analysis of a select number of city-pair markets for each scenario was performed to solicit supporting evidence of competitive behavior of airlines. To keep the preliminary investigation simple, the author has chosen to study the dual-airport systems at Chicago and Houston. Owing to limitations of the data from O&DPlus and ONBOARD, the author used a strict set of criteria to identify 14 city-pair markets to analyze the response of passengers and airlines to challengers entering the city-pair markets between 1984 and 1993. The six quantitative indicators used in the anecdotal analyses include: average fares, average number of nonstop departures per day each way, quarterly origindestination traffic, quarterly non-origin-destination traffic, average quarterly load factors, and the quarterly total airport-to-airport origin-destination traffic. The results of the research indicate that while competition is evident, a general trend of competitive behavior of the airlines in the multiple airport environment is not discernible. The entry of a challenger typically elicits a variety of responses. Significant stimulation of the origin-destination traffic was observed in cases where low-fare carriers entered the market. The fact that the number of non-origin-destination passengers usually exceeds the number of origin-destination passengers may indicate that justification for the service in the airport-pairs examined goes beyond simply satisfying the demand for travel in the origin-destination market. Although quantitative modeling techniques were not used in this study, the author believes that future researchers should contend with the complex, multi-dimensional nature of airline competition before attempting to accurately model the competitive behavior of airlines at multiple airport systems. Thesis Supervisor: Professor Robert W. Simpson Director, MIT Flight Transportation Laboratory