Empirical analysis of the airline industry on the U.S.-China route
This dissertation studies the airline industry on the route between the U.S. and China by examining various issues including market liberalization, airline alliances, and airline mergers. The first chapter focuses on the liberalization in the airline industry between the U.S. and China. As a highly regulated industry, the airline industry has been of interest to policymakers who try to understand the impact and magnitude of airline market restrictions. The aviation agreement between the U.S. and China restricts the routes as well as the number of carriers and flights permitted on these routes. An amendment in 2007 allowed additional routes, and introduced new carriers to participate in these routes. This paper examines detailed transaction data on passenger aviation over a six-year period, and analyzes the impact of the sequential introduction of nonstop routes. In this paper, I also estimate a structural econometric model of demand and supply for air travel, which allows me to conduct counterfactual analysis. The second chapter studies alliances between carriers from the U.S. and China. As international airlines have expanded in recent decades, increasing demand for international air travel between the U.S. and China has prompted U.S. airlines to forge alliances with their overseas counterparts in China to extend the reach of their networks. An airline alliance is an agreement between two or more airlines to cooperate on a substantial level, including unlimited code-sharing between partners. Code-sharing is usually associated with changes in air fares and traffic volume for related routes. In theory, code-sharing should allow providers of complementary routes to set lower prices, and we can check for this in the data. This paper uses a five-year panel data to examine the effects of airline alliances on air fares and traffic volume in the U.S.-China market. The third chapter considers the relationship between mergers and code-sharing. Policymakers typically view the effect of code-sharing on prices as similar to that of mergers. This paper tests to see if that holds true in this context. In particular, this paper studies the impact of Delta and Northwest merger on their international routes between the U.S. and China. I estimate the price effect on the routes where Delta and Northwest previously code-shared with each other before they merged. I find that merger did not have much impact on price in the markets where Delta and Northwest previously code-shared.