Market structure and “frequency economics” in air transport in the United States

Abstract

This article provides an original theoretical model for air transport companies in the U.S. air travel market. The theoretical model of competition among airlines is empirically tested by estimating two equations of demand and price fixing. This estimate is made for 239 routes and 23 airports.

This research provides estimates of the elasticity of demand in terms of price and income. It also provides the elasticities of demand in relation to the frequencies and elasticities of price fixing with regard to the frequencies that would allow us to introduce the new concept of “frequency economies” for the airlines.

Finally, the article presents results that might be useful to the airlines and public authorities, since it also analyzes the effect of the existence or absence of competitive transportation alternatives to air transport, as well as the influence of the hub airports and the population variable. Knowing the results offered here will undoubtedly prove useful to the actors involved in this industry, in terms of how distance, occupancy and the number of frequencies on each route influence costs.