In this paper, I empirically identify a new source of price discrimination utilized by airlines, namely, price discrimination based on the day of the week a ticket is purchased. Using unique transaction data, I compare tickets that are identical in every aspect except day of the week purchased (that is, traveling on the same date on the same route on the same airline with the same restrictions on flights with the same load factors and purchased the same number of days in advance), and find that airfares are cheapest when bought on the weekend. The size of this weekend purchase effect varies with distribution channel (online or offline) and how far in advance of departure the ticket is purchased. For transactions occurring more than two weeks before the departure date, offline weekend purchases are 3% cheaper than those made on weekdays, but online purchase prices do not differ significantly throughout the week. Conversely, in the final two weeks before departure, weekend purchases are 4% less expensive online but not significantly cheaper offline. These findings are consistent with price discrimination between high-elasticity leisure customers and low-elasticity business customers. If airlines believe that weekend purchasers are more likely to be price-elastic leisure travelers, then they may offer lower prices or make deals more transparent on the weekend. This conjecture is supported by the finding that the weekend purchase effect is generally larger on routes with a mixture of both business and leisure customers than on routes primarily traveled by leisure customers because price discrimination is both possible and effective on these heterogeneous routes.

The airline industry is a major driver of economic activity in the United States, accounting for over $1 trillion annually. In this work, I study the airline industry and analyze several key economic issues facing the industry. I examine the industry from several different angles, looking at consumer behavior, firm behavior, and market performance. The body of the dissertation comprises three essays, with each essay focusing on one of the aforementioned facets of the industry. The first essay is a study of consumer demand, using aggregate data to estimate consumer utility functions and identify preferences for airports in large, multi-airport markets. Using these utility functions, I produce tables of cross-airline and cross-airport elasticities, measuring how consumers would be expected to substitute between airports in response to airline price increases and substitute between airlines in response to airport price increases. The second essay is a study of market structure and pricing. I look at changes in market structure over a 20 year time period, focusing on the price effects of entry, exit, and mergers. By looking at both the direct effects as well as the subsequent effects on market concentration, I find that there is tremendous heterogeneity in the effects of these events across markets. The final essay is a model of firm entry and exit decisions in a network environment. I use this model to analyze firm decisions in the airline industry. I find that the size and geographic distribution of firms' networks plays an important role in their decision to further expand or contract, as firms with larger networks are more likely to expand, while firms with smaller networks are more likely to contract. Together, this body of work presents an in-depth analysis of the economic issues surrounding the airline industry. This dissertation includes both previously published and co-authored material.

The primary objective of this research was to understand airline services and product attributes that customers value and to estimate their willingness to pay for these attributes. The research also aimed to understand the consumer decision making and buying process particularly with reference to rules used in the buying process. Would the ranking of a service or product attribute influence customers’ willingness to pay for that attribute? The research was based in South Africa. This research used a structured survey design, asking customers to rank their preferred product attributes and went on to enquire about their willingness to pay for those attributes. The main findings regarding the preferred attributes mirrored those that were uncovered in the literature review. For business travellers, Frequency, Comfort and Business Lounge were found to be predictors of willingness to pay. Only the Business Lounge was found to be a predictor of willingness to pay for non-business travellers. Willingness to pay responses from the two groups were similar; however the results showed that non-business travellers were significantly more willing to pay for Flight Frequency while business travellers were significantly more willing to pay for access to the Business Lounge. With regards to the use of decision making rules, there did not seem to be any clarity on the use of any decision rules for business and non-business travellers. / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

This study investigates drivers of airline loyalty. It contributes to the body of knowledge in the area by investigating loyalty for a number of a priori market segments identified by airline management and by using a method which accounts for the multi-step nature of the airline choice process. The study is based on responses from 687 passengers. Results indicate that, at aggregate level, frequent flyer membership, price, the status of being a national carrier and the reputation of the airline as perceived by friends are the variables which best discriminate between travellers loyal to the airline and those who are not. Differences in drivers of airline loyalty for a number of segments were identified. For example, loyalty programs play a key role for business travellers whereas airline loyalty of leisure travellers is difficult to trace back to single factors. For none of the calculated models satisfaction emerged as a key driver of airline loyalty.

Doctor of Philosophy / Department of Economics / Philip G. Gayle / My dissertation is comprised of two essays in the field of industrial organization with an emphasis on the airline industry. In particular, I investigate how airline mergers and alliances affect the components of total cost. By using a methodology that does not require the researcher to have cost data, I am able to infer marginal costs, fixed costs and sunk costs changes associated with mergers and alliances. My first essay examines two recent airline mergers—Delta/Northwest and United/Continental. Most post-merger analysis in airlines disproportionately focuses on assessing price rather than cost changes. Perhaps one reason is that reliable price data are more readily available. Despite the difficulty of obtaining cost data, researchers have sought to empirically assess whether cost efficiency gains associated with a merger outweigh the increased market power of the merged firm. The results from my analysis suggest that both mergers are associated with marginal and fixed costs savings, but higher market entry costs. The magnitude of the cost effects differed across the mergers. Moreover, I find that the market power effects of these mergers were negligible. My second essay investigates the cost effects of the codesharing alliance between Delta, Northwest and Continental Airlines. Codesharing is one of the most popular forms of airline cooperation that allows an airline to market and sell seats on its partners’ flights as though it owns those flights. Studies have found that airline alliances have very little to no effect on total cost. Rather than analyzing cost as a whole, I study whether a disaggregate analysis on cost is more appropriate. I find evidence that forming an alliance helps generate more passenger traffic for the alliance partners thereby reducing the partner carriers' marginal cost. Even though the literature has found that the total cost effects to be small, an alliance can have a considerable impact on some components of cost.

Stiff competition in the Airline sector mandates airlines to innovate ways to gain a competitive advantage over their rivals; however, without a strong IT the mission to attain this would be arduous. Large airlines do their best to maximise the use of enterprise systems to stream their business processes. Nonetheless, some airlines are not up to date with technology and are left with few choices when attempting to secure their existence in today’s harsh market. One option is to implement bleeding edge systems concurrently (which is our focus in this paper) due to the fact that very scant research exists regarding this phenomenon, let alone the airline sector itself. The aim of this study is explore and investigate the phenomenon of deploying multi enterprise systems concurrently due to its uniqueness and owing to the fact that this approach is not the common practice most airline undertake. We argue here that having multi Airline Solution Providers (ASP) working together concurrently to constitute a homogeneous solution generates many aspects that necessitate a deep understanding in such matters as competitor ASPs and technology leakage. In addition, the study explored various themes that unleash the phenomenon of the concurrent Multi- collaborative Enterprise Systems (MES). The role of cohesion factors that groups the rivals to work under the umbrella of an organisation was also embarked upon in this study. Various aspects contributing to the success of the MES phenomenon have been exposed with regarding ASP’s interplay, organisation, and other contextual surrounding MES. Finally, this study drew a strategic frame work for airlines that unleash the MES phenomenon. A large airline and its collaborative airline solutions provider were taken as the scope of study; the airline had over twenty six thousand employees. Five reputable world class ASPs in the airline industry in various fields were also included. The twenty five participants in this study were professionals in IT and the airline business besides being involved heavily in the phenomenon of deploying concurrent multi enterprise systems. Grounded Theory techniques were used to analyse the large volume of data gathered underpinning this by using state of art software package such as nVivo. This research has explored the phenomenon under study using grounded theory methodology to build a theoretical model that best presents the MES initiative. In addition, it has offered a well-founded framework that explains the MES phenomenon in details, which is relevant to both practitioners and researchers. This research has clearly explored and demonstrated the inhibitors and enablers in the undertaking of MES. In particular, it has focused on enablers of the organisation that received the MES. Furthermore, it has explored the interrelationship between ASPs and exposed some of the aspects that need more focus between rivals working on the same project.

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Airline planning is a complex and difficult process. The biggest airlines in the world plan for and operate fleets of over 700 aircraft using tens of thousands of crew members. As such, small percentages in savings translate to millions of dollars. In this thesis, we study the pairing and duty generation problem in the context of airline crew scheduling, and propose approaches to improve the computational speed and the solution quality. We propose several enumeration algorithms to generate all possible duty periods of a given schedule to improve on the time required to generate duty periods; and present a set of column generation models to improve on the solution quality. When tested on a real test case study, the proposed approaches are found to improve the computational times from 142 seconds down to less than one second, and the cost savings of 13.7%.

In this paper two different models for forecasting the number of monthly departing passengers from Sweden to any international destination are developed and compared. The Swedish transport agency produces forecasts on a yearly basis, where net export is the only explanatory variable controlled for in the latest report. More profound studies have shown a relevance of controlling for variables such as unemployment rate, oil price and exchange rates. Due to the high seasonality within passenger flows, these forecasts are based on monthly or quarterly data. This paper shows that a seasonal autoregressive integrated moving average model with exogenous input outperforms the benchmark model forecast in seven out of nine months. Thus, controlling for oil price, the SEK/EUR exchange rate and the occurrence of Easter reduces the mean absolute percentage error of the forecasts from 3,27 to 2,83 % on Swedish data.

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