DEVI seminar – Chunan Wang

Date - Heure / Date - Hour
Date(s) - 24/11/2016
11h15 - 12h15

Emplacement / Location
Z035, Building Ziegler

Flight Delay, Horizontal Product Differentiation and Airline Network.

This paper investigates the dual roles of flight delay and horizontal product differentiation in airline network choice. A particular feature of this paper is the incorporation of all possible network structures in a three-city network, including a hub-and-spoke network (HS), point-to-point network (PP), mixed network (MX), 2-hub network (2H), with a 3-hub network (3H) as an extension. More importantly, besides contributing to the limited amount of literature on the effects of flight delay, for the function of 2H, I focus on the exploitation of horizontal product differentiation rather than hub airport congestion reduction. In reality, the horizontal product differentiation arises as a result of different flight departure time slots and passengers’ brand loyalty. I find that, first, because of the inclusion of flight delay, the airline may choose PP even when the extra travel time disutility of one-stop services is relatively low. Second, without considering the airline’s fixed investments of developing a hub airport, MX can never be the airline’s optimal network structure while 2H is under consideration, as it involves the horizontal product differentiation in one less market than 2H. Third, comparative statics show that, under MX, for example, when the marginal flight delay cost increases, the change of flight frequency between two spoke airports depends on the trade-off between the direct harm of a higher delay cost and the strategic redistribution of traffic among different routes. Finally, welfare analysis shows the airline’s inefficient biases toward PP and 2H.

Chunan Wang, TSE, Toulouse.