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The competitive behavior of international airlines: A study of airline profitability
BibliographicSection robustness, and principal components regression is employed to combat the problem of multicollinearity. Numerical examples of applications of the model are provided. The results indicate that the model performs very well in the analysis of long and medium haul markets. It is particularly effective in the higher density markets. The model is not equipped to account for the impacts upon air transportation passenger demand of competing modes, (less than 400 miles) markets.
The Competitive Behavior of International Airlines: A Study of Airline Profitability, Leonard G. Klingen (Dissertation in the Department of International Studies, University of Miami, Coral Gables, FL). In the last few years nearly every major airline has gone through a series of management changes and reorganizations in an effort to stem the worsening trend in operating results. Although the fuel crisis has aggravated this trend, there is little doubt that the situation in the international airline industry had already reached crisis proportions before this, with the explosive growth of capacity on the world’s air routes. The uncontrollable increases in charter operations, which are not subject to the same rules and regulations as the scheduled carriers have further worsened the situation. This study explains that the poor performance of the airlines, especially that of the larger carriers, is the result of the system under which they operate. With a regulated price and nearly equal costs and load factors, the smaller airlines will always have a competitive advantage over the larger ones, which has manifested itself in a dramatic loss of market share for the bigger operators. The theory explains why maximization of sales instead of profits is the best alternative in the absence of any international regulation of capacity. Since there is no effective entry barrier, natural or artificial, and no collusion as regards output, airlines are forced to flood the market with capacity to retain their shares of the market and maintain stability in the industry. This policy, however, leads to chronic over-capacity, low profitability and higher than necessary fares to even earn a normal return on investment. Finally,recommendations for changes in international regulatory institutions are made to improve the operating environment for the carriers, while ensuring an adequate level of service for the passengers.
139
This research analyzes the huge fiscel crises in public transportation. The central theme is established that the transit industry and transit planners have always been preorcupied with capital costs and physical investments, and have failed to understand or deal with operating costs. Historical evidence shows that while operating costs have been a serious problem for the transit industry for decades, attention has focused on the issue of capital. Case studies of recently proposed projects for the Los Angeles metropolitan area illustrate that planners are doing what street railway entrepreneurs did decades ago. They overcapitalized their systems because they assumed that could pay off their bonds while thinking too little about the escalation of operating costs over time. Detailed operating cost data representing trends over about ten years were examined for five separate transit systems in Los Angeles, the San Francisco Bay Area and Chicago. The research compares the rates of cost escalation for each operator and for some ten categories of cost. Cost increases were analyzed in both constant and inflated dollars. The results show that increases in certain categories lagged behind inflation rates, while in other categories, principally fringe benefits to employees, cost increased three to four times as rapidly as the general rate of price increases. Furthermore, some of the cost increases are directly attributable to contracts which provide for increased public subsidies only on the condition that certain services be maintained or expanded. Existing models that can forecast short range operating cost increases were examined and found inadequate because their underlying parameters are subjects to rapid change. Scenario building appears to be a more useful technique for planners to gauge the impacts of alternative futures on operating costs. Agencies that allocate subsidies, for example, can use this technique to analyze potential operating costs from service expansion of fixed route transit into areas with little or no history of transit service. Suggestions made to help control operating cost escalation include changing subsidy policies to reward efficient and effective transit operations and lessening regulatory restrictions which now prohibit shared-ride services in order to develop coordinated public transportation networks. Further research is recommended on the effects of trip length and changing peak-base ratio on operating costs. In addition, the need is cited for more systematic analysis of public transportation operating costs.
Optimizing Navigation Investments to Relieve Lock Congestion on Waterways, Srikanth Rao, Department of The Escalation of Urban Transit Operating Costs: Zmphtions for the Future, James David Ortner, Graduate
Program in Community and Regional Planning, School of Architecture, University of Texas, Austin, TX 78712 (Dissertation in Department of Urban Planning, University of California, Los Angeles, CA.).
Management Science, Pennsylvania State University, University Park, PA 16802 (Dissertation available as Report PTI 7702, Pennsylvania Transportation Institute, Research Building B, Pennsylvania State University.) The research develops an optimization methodology for identifying efficient navigation investments to relieve
The Competitive Behavior of International Airlines: A Study of Airline Profitability, Leonard G. Klingen (Dissertation in the Department of International Studies, University of Miami, Coral Gables, FL). In the last few years nearly every major airline has gone through a series of management changes and reorganizations in an effort to stem the worsening trend in operating results. Although the fuel crisis has aggravated this trend, there is little doubt that the situation in the international airline industry had already reached crisis proportions before this, with the explosive growth of capacity on the world’s air routes. The uncontrollable increases in charter operations, which are not subject to the same rules and regulations as the scheduled carriers have further worsened the situation. This study explains that the poor performance of the airlines, especially that of the larger carriers, is the result of the system under which they operate. With a regulated price and nearly equal costs and load factors, the smaller airlines will always have a competitive advantage over the larger ones, which has manifested itself in a dramatic loss of market share for the bigger operators. The theory explains why maximization of sales instead of profits is the best alternative in the absence of any international regulation of capacity. Since there is no effective entry barrier, natural or artificial, and no collusion as regards output, airlines are forced to flood the market with capacity to retain their shares of the market and maintain stability in the industry. This policy, however, leads to chronic over-capacity, low profitability and higher than necessary fares to even earn a normal return on investment. Finally,recommendations for changes in international regulatory institutions are made to improve the operating environment for the carriers, while ensuring an adequate level of service for the passengers.
139
This research analyzes the huge fiscel crises in public transportation. The central theme is established that the transit industry and transit planners have always been preorcupied with capital costs and physical investments, and have failed to understand or deal with operating costs. Historical evidence shows that while operating costs have been a serious problem for the transit industry for decades, attention has focused on the issue of capital. Case studies of recently proposed projects for the Los Angeles metropolitan area illustrate that planners are doing what street railway entrepreneurs did decades ago. They overcapitalized their systems because they assumed that could pay off their bonds while thinking too little about the escalation of operating costs over time. Detailed operating cost data representing trends over about ten years were examined for five separate transit systems in Los Angeles, the San Francisco Bay Area and Chicago. The research compares the rates of cost escalation for each operator and for some ten categories of cost. Cost increases were analyzed in both constant and inflated dollars. The results show that increases in certain categories lagged behind inflation rates, while in other categories, principally fringe benefits to employees, cost increased three to four times as rapidly as the general rate of price increases. Furthermore, some of the cost increases are directly attributable to contracts which provide for increased public subsidies only on the condition that certain services be maintained or expanded. Existing models that can forecast short range operating cost increases were examined and found inadequate because their underlying parameters are subjects to rapid change. Scenario building appears to be a more useful technique for planners to gauge the impacts of alternative futures on operating costs. Agencies that allocate subsidies, for example, can use this technique to analyze potential operating costs from service expansion of fixed route transit into areas with little or no history of transit service. Suggestions made to help control operating cost escalation include changing subsidy policies to reward efficient and effective transit operations and lessening regulatory restrictions which now prohibit shared-ride services in order to develop coordinated public transportation networks. Further research is recommended on the effects of trip length and changing peak-base ratio on operating costs. In addition, the need is cited for more systematic analysis of public transportation operating costs.
Optimizing Navigation Investments to Relieve Lock Congestion on Waterways, Srikanth Rao, Department of The Escalation of Urban Transit Operating Costs: Zmphtions for the Future, James David Ortner, Graduate
Program in Community and Regional Planning, School of Architecture, University of Texas, Austin, TX 78712 (Dissertation in Department of Urban Planning, University of California, Los Angeles, CA.).
Management Science, Pennsylvania State University, University Park, PA 16802 (Dissertation available as Report PTI 7702, Pennsylvania Transportation Institute, Research Building B, Pennsylvania State University.) The research develops an optimization methodology for identifying efficient navigation investments to relieve