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1. 1 A Brief History of U. S. Commercial Aviation Regulation and Deregulation The U. S. commercial aviation industry was regulated by the government for a period of 40 years, beginning in 1938 with. the passing of the Federal Aviation Act, and ending in October 1978 when President Carter signed into law the Airline Deregulation Act (ADA). There were 16 airlines in existence when the Federal Aviation Act was passed in 1938 (the so-called 'trunk lines'). The Act established the Civil Aeronautics Authority (CAA) as the industry's regulatory body. The Act was passed principally because it was felt that the free market, if allowed to continue unregulated for much longer, would put many of these firms into bankruptcy. It is possible therefore to view the CAA of 1938 (re-organized into the Civil Aeronautics Board (CAB) in 1940) as a response to a potential market failure at the time. In the 1930s, few air traffic markets could have efficiently"supported more than one airline operating in the market [Panzar (1980)]. Competition among the carriers was cut-throat, and it was felt that the near bankruptcy of the airlines in the period was caused principally by the competitive bidding system used by the Post Office in allotting airmail subsidies [Keeler (1972), Caves (1962)].

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
The U.S. commercial aviation industry was regulated by the government for a period of 40 years, beginning in 1938 with the passing of the Federal Aviation Act, and ending in October 1978 when President Carter signed into law the Airline Deregulation Act (ADA). There were 16 airlines in existence when the Federal Aviation Act was passed in 1938 (the so-called ‘trunk lines’). The Act established the Civil Aeronautics Authority (CAA) as the industry’s regulatory body. The Act was passed principally because it was felt that the free market, if allowed to continue unregulated for much longer, would put many of these firms into bankruptcy. It is possible therefore to view the CAA of 1938 (re-organized into the Civil Aeronautics Board (CAB) in 1940) as a response to a potential market failure at the time. In the 1930s, few air traffic markets could have efficiently supported more than one airline operating in the market [Panzar (1980)]. Competition among the carriers was cut-throat, and it was felt that the near bankruptcy of the airlines in the period was caused principally by the competitive bidding system used by the Post Office in allotting airmail subsidies [Keeler (1972), Caves (1962)]. Given that for most routes it was economical for only one carrier to transport the mail, and impossible for an airline to be viable carrying passenger traffic alone, airline markets can be considered to have been joint product natural spatial monopolies.
Aisling J. Reynolds-Feighan

Chapter 2. Previous Studies on U.S. Airline Deregulation

Abstract
This chapter is set out in three sections and reviews different aspects of the literature on U.S. airline deregulation. In the first section, the issues and concerns raised by economists are summarized and some of the major findings are reported. In the second section, the small body of work done by geographers and regional scientists in the area of commercial aviation is outlined. Section 2.3., the final section, deals with research undertaken by operations researchers in transport and can generally be described as network or scheduling studies. The emphasis in this last section is placed on the conceptualization and formulation of the problems rather than on solution methods and detailed empirical findings.
Aisling J. Reynolds-Feighan

Chapter 3. The Setting: Trends in U.S. Commercial Aviation

Abstract
The purpose of this chapter is to survey the changes that have been taking place in the airline industry and in the national airways system, since the 1960s. In the previous chapter, various economic assessments of the industry since 1978 were reported, and two consistent shortfalls in the examinations and analyses were highlighted. These were the failure to focus on the extent and nature of specific network changes, and the effect of these changes on the national airport system. In this chapter, both of these issues will be addressed. Specifically, the aims are to (1) describe the changes taking place in the national airways system and attempt to link these with patterns of change among air carriers’ route systems; (2) to ascertain whether the air carriers’ propensity to concentrate traffic in their system at a small number of points (i.e. to develop and emphasize so-called ‘hub-and-spoke’ systems) has occurred only since 1978, or if this trend was in place before deregulation; (3) investigate the most appropriate measure of networks and network change, taking into account as many aspects of the airlines’ networks as possible.
Aisling J. Reynolds-Feighan

Chapter 4. Development of a Production Model of the Airline Firm

Abstract
In this chapter a model of the airline firm is developed which takes account of the joint-product nature of airline production over a system of routes. In Chapter 2, the airline’s schedule construction problem was briefly outlined and the view of the network as both the production plan and the product was explained. Using this view of the network, it will be shown how characteristics of the routes may be included in the firm’s production function in a logical and formal manner. This analysis is detailed in section 4.1. The multi-product production model is then developed in section 4.2. In section 4.3, an alternative view of the airline production problem is put forward. This involves an examination of the problem at the airport level rather than at the route level. The disadvantages and difficulties of this approach are highlighted and it is recommended that the route approach be used instead, despite the fact that data at the airport level is more easily available. The empirical production model is then explained in section 4.4 and the dependence between routes in the network is catered for by use of a spatial autoregressive structure in the estimating procedure. In section 4.5, the ‘frontier’ or ‘best practice’ production model is set out and the estimation procedure explained.
Aisling J. Reynolds-Feighan

Chapter 5. Data Description and Computation of the Production Variables

Abstract
In order to test the production model with a network variable and measure the degree of inefficiency in the system as described in Chapter 4, detailed route by route production data was required from a large U.S. airline. Continental Airlines were approached, and a request was made to them for route statistics for a one year period. The airline obliged, and provided an extensive data set for their domestic system operations on non-stop markets for the year 1987/88. The airline staff pointed out that they did not maintain extensive historical records on their routes: the information was kept for two years at most. In addition, in view of the dramatic changes in this particular airline’s size and extent, much of the historical information is now irrelevant. The airline’s schedule planning framework operates for periods much shorter than 12 months, so the staff suggested that there would be inherent biases in the one year data set. This data set is described in detail in section 5.1. In section 5.2 the generation of input and output variables for the production analysis is described. Since four of the input factor variables were highly correlated, it was decided to use Principal Components Analysis to generate a new single variable representing most of the common variation in the four factors. This procedure is described in section 5.3. The final section of the chapter deals with the specification and calibration of a doubly-constrained Gravity model, which is used as the ‘network’ variable in the production function.
Aisling J. Reynolds-Feighan

Chapter 6. Production Function Analysis of Continental Airlines

Abstract
In this chapter, the results of the production functions estimated for Continental Airlines’ domestic route system are reported. The Chapter is divided into two sections. In section 6.1 the results of the Cobb-Douglas production function estimates are presented and discussed. Five functions were estimated in all, and these functions are compared in section 6.1 to highlight differences in the organization and performance of different hub subsystems and non-hub routes. The section presents strong empirical evidence for including a network variable in the airline firm’s production function.
Aisling J. Reynolds-Feighan

Chapter 7. Conclusions and Recommendations

Abstract
In this chapter, a brief summary is provided of the main findings from the U.S. air system analysis of Chapter 3, and the individual airline analysis of Chapters 5 and 6. Throughout these reviews, further avenues of research will be pointed out, and in the case of the airline-level study, recommendations are made concerning further empirical work.
Aisling J. Reynolds-Feighan

Backmatter

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