Innovation in U.S. trunk airlines: Wide body aircraft

Bibliographic Section Entry Conditions in the Domestic Commercial Airline Industry Under Deregulation, Richard Lee Johnson, 1982, UMI DA8217583 (Dissertation at George Washington University, Washington, DC 20052). The Airline Deregulation Act was enacted in 1978. It was the intent of Congress in passing the Deregulation Act to allow market forces to determine the quality and prices of air services available to the public. This dissertation examines the consequences of greater market entry among domestic air carriers during the period of transition to a less regulated environment. The transition period studied encompasses the two year period after the passage of Deregulation Act. The basic hypothesis tested is that the interdependence of markets is an important factor that carriers look at in attempting to expand. Entry into markets that occurred under the dormant authority provision of the new act are analyzed. A logit model is used to model successful and unsuccessful entry. A major determinant of successful entry for existing trunks and local service carriers in a new market is the share of feed contributed by the entrant as interline feed. Existing carriers that were cautious about route expansion and made logical and carefully planned extensions appeared to be performing better. The major beneficiaries of deregulation were the local service carriers as opposed to the trunk carriers. The local service airlines appear to have been in a better position to take advantage of the relaxed entry provisions, since they already had a good feeder system from which to expand. Another type of entry examined is by entirely new firms. The successful experience of Southwest Airlines is examined in detail. It is concluded that new airlines are following the Southwest example and are most likely to begin scheduled airline service on a small scale in predominantly turnaround markets. Although feed traffic is not ignored by these carriers, it receives less emphasis, and prospective markets are judged much more by the extent to which extremely low fares will attract the point-to-point passengers away from other carriers and from ground transportation. These carriers are providing new service offerings at a lower price. They are also employing marginal cost pricing principles. The necessity of establishing interdependent markets is not found to be a significant entry barrier.

Innovation in U.S. Trunk Airlines: Wide Body Air craft, James Patrick Keeler, 1981, UMI 8128018 (Dissertation at Purdue University, Lafayette, IN 47907) The U.S. trunk airlines, during the 1970’s, accomplished an extensive conversion of their aircraft fleet to a new type of aircraft. Considering that the new TRA Vol. 17 No. &F

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“wide body” aircraft represented a new technology, the present study describes the patterns of and influences on its adoption, and the effects that it created upon the production function of the airlines. The diffusion period of this innovation is modelled by the logistic function, yielding estimates of the date of origin, extent and rate of diffusion for each airline, and aircraft type. Differences between these measures across the instances of adoption are explained by influences such as the firm’s financial characteristics, market structure, and the airline route structure. To analyze the effects of technological change, an improved method of describing and measuring the changes in the production function was developed. It is based upon a series of successive production function estimates through the diffusion period for the innovation, and the calculation of changes across the estimates. The attempt is made to extend the possible channels of technological change, rather than consider only a few such as the rate and bias of innovation. It is shown that there are many channels of including output elasticities, marginal influence, products, bias and factor proportions, elasticities of substitution, returns to scale, and neutral efficiency. The impacts of an innovation need not be consistent for these aspects, and they represent concepts which can not be aggregated into a few measures of change. Changes in the production function parameters are analyzed in an application of the method to the airlines’ adoption of the wide body aircraft. The translog production function was employed for eight estimates over the diffusion period of 197&1977, for each calendar year. From the patterns of change of the production relations, a description of the nature of technological change for the airlines was developed. The study provides information on the innovative performance of the airlines. A major contribution of the study is the alternative analysis of innovation and its ability to describe and measure the effects of technological change on the production relations.

The Welfare Effects of Airline Fare Deregulation, Donald William Koran, 1982, UMI DA 8205114 (Dissertation at Johns Hopkins University, Baltimore, MD 21218) The deregulation of airline fares presents a rare opportunity to examine the effects of an abrupt change in market structure. Before 1977 the Civil Aeronautics Board regulated fares and entry in U.S. airline markets and allowed the carriers to compete only in terms of service quality. This dissertation examines the effect of the deregulation of airline fares on fares, service quality, demand, consumer surplus and producer surplus. The major finding is that airline fare deregulation resulted in an increase in consumer surplus of between fifteen and twenty dollars per round trip. With