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The effects of deregulation on US air networks
Book reviews THE EFFECTS OF DEREGULATION ON US AIR NETWORKS Aisling J. Reynolds-Feighan Springer-Verlug,
DMHH,
Berlitz, 1992, I.71 pp., .3-M&
US$SUSO, LSBN
.5#7_58+4 After some 15 years of dcrcgulation of the US airline industry, which has had subsequent global rcpcrcussions, a sufficient body of evidcncc has accumulated to permit empirical study over a sufficient time-scale to make the results meaningful. The literature that has developed, particularly in economics in the USA, has been quite considerable. This concise, lucid and high accessible book is a very significant contribution, however, and for geographers particularly so, since the author’s principal case is to show that the spatial nature of the air transport product is of crucial importance to any analysis of airline commercial and operational strategy. That deregulation has had a fundamental effect on the overall pattern of air service is above dispute, and many carlicr studies have sought to explain the rationale behind the move towards integrated hub-and-spoke networks. h4uch conflicting evidence has been produced regarding the signiticancc of airlines concentrating service around a small number of cities which then act as transit points. Their effectiveness in reducing unit costs, or alternatively in shielding a proportion of the airlines’ output from competition by creating local market dominance has been tested, with somewhat inconclusive results. Chapter 1 gives a brief background to the book in outlining the development of the industry under regulation, and its subsequent transition to a fully open-market environment, but wisely does not attempt a comprehensive historical review. In Chapter 2 the author goes on to explain how much of the controversy arising from earlier research on airline operations stems 274
fundamentally from a failure to deal conceptually with the importance of networks as a key factor in the production process, being key aspects of both the transportation product, and the production plan. In modelling airlines’ operations, the spatial element of the product necessitates the specification of a model at an appropriate spatial scale of analysis, namely at the overall level of the national airline network. which is itself the result of the dcvclopmcnt of the system flight schedules of each individual carrier. The paucity of geographical analysis in this sphcrc over the last 20 years is a point explicitly highlighted by the author. An empirical study of the dcvclopmcnt of the national airline network follows, covering a substantial period from 1969-88, the earlier half of which was under the regulated regime. The absolute concentration of traffic through a smaller number of nodes in the network is shown, and changes in traffic distribution relative to city size stem to demonstrate that the largest cities tcndcd to show the most marked local market concentration. as airlines dcvclopcd hub operations at these points. The author’s results, significantly, indicate that this trend predated deregulation, and, perhaps more signific~~ntly still for the supporters of deregulation. the amount of competition at smaller cities, measured in the number of airlines serving each, has significantly risen, as airlines have sought maximum network coverage of traffic potential. The dcvclopment of the networks of two major airlines are examined to highlight the strategies that have given rise to the aggrcgatc trends. The theoretical confusion surrounding geographical scale is highlighted in this: the FAA’s definition of a hub is essentially rooted at the local scale of the traffic gencratcd at a single node; definition of a hub an airline’s depends on the position of a node relative to all the others in a given regional or national network, where
its significance in that role is rcflcctcd, if anything, in the proportion of traffic not originating locally but mcrcly in transit. I am not entirely certain that this question of scale is entirely rcsolvcd. since findings at the scale of the overall national network level arc not very well rclntcd to the author’s analysis of network changes at the airline lcvcl. This is reflected in the fact that the scale of individual airline networks has tended to increase rclativc to a national one, as market structure has concentrated on a n~~tional scale, as well as at individu~ll airports, particularly the single-carrier hubs. The author has tcndcd rather to look at changing distributions 01 traffic within a single airline’s growing system, whilst not sufficiently undcrlining how this has been related to the commercial drive to incrcasc massively the spatial extent of those n&works. The author dots, however, make a key point in comparing the various statistical mcasurcs of concentration, iiil~strating how inscnsitivc many quantitative mcthod~~logics cmploycd in earlier studies arc. particularly to changes in network size. Finally, a model of the airline production function is proposed, aiming to take account of the jointproduct nature of any airline’s production process, since the output on one route affects some or all of the others. This network variable is shown to he highly significant in dctcrmining the rclntivc cfficicncy of individual routes in the network of a given airline. The comparative cfficicncy of each hub, relating to the dcgrec of transit traffic gcncratcd bctwccn its individual spoke routes, was also invcstigatcd. The complexity of each airline’s nctwork. and the heterogeneity of each spoke and its contribution to the traffic flows cvcn at a single hub, wcrc illustrated by the case of a single route, Cleveland. Ohio to Newark. New Jcrscy, which had a substantial distorting cffcct on the mcasurcs of the efficiency of the Newark hub.
Book reviews Once again the complexity reflects the issue of scale, with a single carrier’s output on any given non-stop route reflecting local demand, the airline’s market sham in the markets at either end, as well as the traffic generated in feeding a network at a much larger scale. Neverthless, Reynolds-Feighan’s research, whilst exhaustive, illustrates the difficulties encountered in examining an industry which has cxperienccd many years of restructuring, a process that is apparently continuing at an ever-widening scale and with everdeepening severity. The author’s successful acquisition of the dataset used, that of Continental Airlines’ scheduling and traffic data for the years 1987-88, was a feat in itself given its commercial sensitivity. However, this transect reflects an airline in the process of assimilating, organizationally and operationally, no less than four different major airlines, as part of a process of domestic market consolidation and concentration that was at its height, against a background of steadily increasing traffic. Within three years, the industry entered its still-prevailing downturn, and some of and marketing the scheduling including hubbing, that strategies, were key elements in competitive strategy in earlier periods are now being questioned, and re-evaluated. Nicholas Department University
0.
Small
of Geography of Reading,
UK
TRANSPORT AND ECONOMIC DEVELOPMENT IN THE NEW CENTRAL AND EASTERN EUROPE D. R. Hall (cd) Belhaven York, ISBN
Press,
1993,
252
London pp.,
l-85293-2704
catalogue) ,
IS B N
and
New
f45.00
(hbk),
(.Qitish
Library
047022-oO3~1
(America)
If we accept the assumption that transport development corresponds with the level of economic development then the under-performance of
‘transitional economies’ and their transport provides a systems, challenging study. This edited book, which discusses ‘Transport and Economic development in the new Central and Eastern Europe’, was compiled by Hall with a series of contributory authors, many of whom demonstrate in-depth knowledge of the changing regional economies of post-Communist states. It examines the economic, political and social themes which have shaped and continue to influence the evolution of transport systems throughout the area, presenting these at a variety of different scales. To follow this text, open a recent good quality atlas, such as Coffins Atlas of the World (new edition 1991). This will help the reader answer the difficult geopolitical question: where is East and Central Europe? In the book the reader is moved easily from the European scale to country, and to region, which is just as well given the speed of fragmentation which the area displays. Similarly, the book examines a comprehensive range of transport modes, getting the reader to change from public transport to rail, or air travel and considers, also, freight management by maritime transport and oil pipeline in a way broadly indicative of an integrated approach to transport. The book commences with a chapter by Hall and Kowalski on transport and economic restructuring, defining how important decentralization, privatization and integration with the West have become to the reform programmc. Some patchy economic data arc presented: on the economy, (GDP etc) and population of the constituent states, which accompanies figures giving the level of transport activity. Perhaps there was a shortage of statistical data. Partly this is inevitable, since information sources within Eastern Europe were tightly controlled, but some comparative data to enable readers to make a swift comparison with Western Europe would have been useful, in particular, in indicating how much latent demand for transport investment may yet emerge as the East Europe would have been useful. in the contributors (Kowalski), for
Journal of Transport Geography 1993 Volume 1 Number 4
example, reports that by 2010 GDP per capita in Germany’s five eastern Lander will have grown to equal that of its western counterparts. One wonders what are the future, albeit lower growth prospects for the other states? The study spans Europe. One common theme developed by Michalak and Gibb is the prospects for further East-West integration, drawing attcntion to planned road, rail and pipeline developments. According to Pinder and Simmonds there is a choice of further prospects for increasing the connectivity of the oil pipeline system, by adding small North-South links or more strategic westwards-orientated lines either of which will encourage imports that lessen the dependence on supplies from a less stable Commonwealth of Independent States (CIS) to the east. As the East European nations strengthen their links with the West, Symonds gives an account of the continued investment in newer airline fleets funded. in part, through savings made possible by privatization. What are the consequences for employment? The country case studies start with the transport implications of German unification. This covers how the five Lander of the former East Germany are being integrated into the Federal Republic at a great cost to the German economy. The assimilation of East German enterprises into West German companies and the speed of change after the Berlin Wall crumbled are remarkable. Prileszky describes the importance of the private sector in the restructuring of Hungary’s transport and raises issues such as over-capacity. How can western companies be attracted when financial returns diminish due to over-supply? Parallels between the privatization of the Hungarian railways, adopting the concept of the ‘concession company’, and the privatization/franchising of British Rail arc fascinating. The basis of Poland’s maritime heritage based on large flows of much needed imports, with the flow of export trade from a wide hinterland, is explained by Sawiczcwska. Innovations such as the advent of toll motorways and concession systems used to promote the development of a Polish275
DMHH,
Berlitz, 1992, I.71 pp., .3-M&
US$SUSO, LSBN
.5#7_58+4 After some 15 years of dcrcgulation of the US airline industry, which has had subsequent global rcpcrcussions, a sufficient body of evidcncc has accumulated to permit empirical study over a sufficient time-scale to make the results meaningful. The literature that has developed, particularly in economics in the USA, has been quite considerable. This concise, lucid and high accessible book is a very significant contribution, however, and for geographers particularly so, since the author’s principal case is to show that the spatial nature of the air transport product is of crucial importance to any analysis of airline commercial and operational strategy. That deregulation has had a fundamental effect on the overall pattern of air service is above dispute, and many carlicr studies have sought to explain the rationale behind the move towards integrated hub-and-spoke networks. h4uch conflicting evidence has been produced regarding the signiticancc of airlines concentrating service around a small number of cities which then act as transit points. Their effectiveness in reducing unit costs, or alternatively in shielding a proportion of the airlines’ output from competition by creating local market dominance has been tested, with somewhat inconclusive results. Chapter 1 gives a brief background to the book in outlining the development of the industry under regulation, and its subsequent transition to a fully open-market environment, but wisely does not attempt a comprehensive historical review. In Chapter 2 the author goes on to explain how much of the controversy arising from earlier research on airline operations stems 274
fundamentally from a failure to deal conceptually with the importance of networks as a key factor in the production process, being key aspects of both the transportation product, and the production plan. In modelling airlines’ operations, the spatial element of the product necessitates the specification of a model at an appropriate spatial scale of analysis, namely at the overall level of the national airline network. which is itself the result of the dcvclopmcnt of the system flight schedules of each individual carrier. The paucity of geographical analysis in this sphcrc over the last 20 years is a point explicitly highlighted by the author. An empirical study of the dcvclopmcnt of the national airline network follows, covering a substantial period from 1969-88, the earlier half of which was under the regulated regime. The absolute concentration of traffic through a smaller number of nodes in the network is shown, and changes in traffic distribution relative to city size stem to demonstrate that the largest cities tcndcd to show the most marked local market concentration. as airlines dcvclopcd hub operations at these points. The author’s results, significantly, indicate that this trend predated deregulation, and, perhaps more signific~~ntly still for the supporters of deregulation. the amount of competition at smaller cities, measured in the number of airlines serving each, has significantly risen, as airlines have sought maximum network coverage of traffic potential. The dcvclopment of the networks of two major airlines are examined to highlight the strategies that have given rise to the aggrcgatc trends. The theoretical confusion surrounding geographical scale is highlighted in this: the FAA’s definition of a hub is essentially rooted at the local scale of the traffic gencratcd at a single node; definition of a hub an airline’s depends on the position of a node relative to all the others in a given regional or national network, where
its significance in that role is rcflcctcd, if anything, in the proportion of traffic not originating locally but mcrcly in transit. I am not entirely certain that this question of scale is entirely rcsolvcd. since findings at the scale of the overall national network level arc not very well rclntcd to the author’s analysis of network changes at the airline lcvcl. This is reflected in the fact that the scale of individual airline networks has tended to increase rclativc to a national one, as market structure has concentrated on a n~~tional scale, as well as at individu~ll airports, particularly the single-carrier hubs. The author has tcndcd rather to look at changing distributions 01 traffic within a single airline’s growing system, whilst not sufficiently undcrlining how this has been related to the commercial drive to incrcasc massively the spatial extent of those n&works. The author dots, however, make a key point in comparing the various statistical mcasurcs of concentration, iiil~strating how inscnsitivc many quantitative mcthod~~logics cmploycd in earlier studies arc. particularly to changes in network size. Finally, a model of the airline production function is proposed, aiming to take account of the jointproduct nature of any airline’s production process, since the output on one route affects some or all of the others. This network variable is shown to he highly significant in dctcrmining the rclntivc cfficicncy of individual routes in the network of a given airline. The comparative cfficicncy of each hub, relating to the dcgrec of transit traffic gcncratcd bctwccn its individual spoke routes, was also invcstigatcd. The complexity of each airline’s nctwork. and the heterogeneity of each spoke and its contribution to the traffic flows cvcn at a single hub, wcrc illustrated by the case of a single route, Cleveland. Ohio to Newark. New Jcrscy, which had a substantial distorting cffcct on the mcasurcs of the efficiency of the Newark hub.
Book reviews Once again the complexity reflects the issue of scale, with a single carrier’s output on any given non-stop route reflecting local demand, the airline’s market sham in the markets at either end, as well as the traffic generated in feeding a network at a much larger scale. Neverthless, Reynolds-Feighan’s research, whilst exhaustive, illustrates the difficulties encountered in examining an industry which has cxperienccd many years of restructuring, a process that is apparently continuing at an ever-widening scale and with everdeepening severity. The author’s successful acquisition of the dataset used, that of Continental Airlines’ scheduling and traffic data for the years 1987-88, was a feat in itself given its commercial sensitivity. However, this transect reflects an airline in the process of assimilating, organizationally and operationally, no less than four different major airlines, as part of a process of domestic market consolidation and concentration that was at its height, against a background of steadily increasing traffic. Within three years, the industry entered its still-prevailing downturn, and some of and marketing the scheduling including hubbing, that strategies, were key elements in competitive strategy in earlier periods are now being questioned, and re-evaluated. Nicholas Department University
0.
Small
of Geography of Reading,
UK
TRANSPORT AND ECONOMIC DEVELOPMENT IN THE NEW CENTRAL AND EASTERN EUROPE D. R. Hall (cd) Belhaven York, ISBN
Press,
1993,
252
London pp.,
l-85293-2704
catalogue) ,
IS B N
and
New
f45.00
(hbk),
(.Qitish
Library
047022-oO3~1
(America)
If we accept the assumption that transport development corresponds with the level of economic development then the under-performance of
‘transitional economies’ and their transport provides a systems, challenging study. This edited book, which discusses ‘Transport and Economic development in the new Central and Eastern Europe’, was compiled by Hall with a series of contributory authors, many of whom demonstrate in-depth knowledge of the changing regional economies of post-Communist states. It examines the economic, political and social themes which have shaped and continue to influence the evolution of transport systems throughout the area, presenting these at a variety of different scales. To follow this text, open a recent good quality atlas, such as Coffins Atlas of the World (new edition 1991). This will help the reader answer the difficult geopolitical question: where is East and Central Europe? In the book the reader is moved easily from the European scale to country, and to region, which is just as well given the speed of fragmentation which the area displays. Similarly, the book examines a comprehensive range of transport modes, getting the reader to change from public transport to rail, or air travel and considers, also, freight management by maritime transport and oil pipeline in a way broadly indicative of an integrated approach to transport. The book commences with a chapter by Hall and Kowalski on transport and economic restructuring, defining how important decentralization, privatization and integration with the West have become to the reform programmc. Some patchy economic data arc presented: on the economy, (GDP etc) and population of the constituent states, which accompanies figures giving the level of transport activity. Perhaps there was a shortage of statistical data. Partly this is inevitable, since information sources within Eastern Europe were tightly controlled, but some comparative data to enable readers to make a swift comparison with Western Europe would have been useful, in particular, in indicating how much latent demand for transport investment may yet emerge as the East Europe would have been useful. in the contributors (Kowalski), for
Journal of Transport Geography 1993 Volume 1 Number 4
example, reports that by 2010 GDP per capita in Germany’s five eastern Lander will have grown to equal that of its western counterparts. One wonders what are the future, albeit lower growth prospects for the other states? The study spans Europe. One common theme developed by Michalak and Gibb is the prospects for further East-West integration, drawing attcntion to planned road, rail and pipeline developments. According to Pinder and Simmonds there is a choice of further prospects for increasing the connectivity of the oil pipeline system, by adding small North-South links or more strategic westwards-orientated lines either of which will encourage imports that lessen the dependence on supplies from a less stable Commonwealth of Independent States (CIS) to the east. As the East European nations strengthen their links with the West, Symonds gives an account of the continued investment in newer airline fleets funded. in part, through savings made possible by privatization. What are the consequences for employment? The country case studies start with the transport implications of German unification. This covers how the five Lander of the former East Germany are being integrated into the Federal Republic at a great cost to the German economy. The assimilation of East German enterprises into West German companies and the speed of change after the Berlin Wall crumbled are remarkable. Prileszky describes the importance of the private sector in the restructuring of Hungary’s transport and raises issues such as over-capacity. How can western companies be attracted when financial returns diminish due to over-supply? Parallels between the privatization of the Hungarian railways, adopting the concept of the ‘concession company’, and the privatization/franchising of British Rail arc fascinating. The basis of Poland’s maritime heritage based on large flows of much needed imports, with the flow of export trade from a wide hinterland, is explained by Sawiczcwska. Innovations such as the advent of toll motorways and concession systems used to promote the development of a Polish275