Airline Economics: Foundations for Strategy and Policy.

• Author: Leahy, Arthur S.

Airline Economics is primarily a reference manual designed more for the policy maker rather than for the economist. In this work, Tretheway and Oum explore a variety of subjects including airline costs, demand, pricing, marketing, route systems, and globalization. The book is easy to read and well organized and includes an index of topics by section.

In Chapter 2, airline costs are examined. The discussion highlights aircraft size, stage length, and load factor as the primary determinants of airline costs. In addition, the authors point out the important distinction between economies of firm size and economies of traffic density, consistent with the earlier work of Caves, Christensen, and Tretheway |2~. There is no discussion of the influence of fuel price on airline costs, however, nor any discussion of industry concentration trends. Other work in this area suggests that airline costs are quite sensitive to fuel prices |1; 4~ and that economies of density have been an important determinant of changes in concentration since deregulation |3~.

A significant omission in the cost area is that of the impact of the recent Congressional ban on Stage 2 airplanes, effective December 31, 1999.(1) This ban was included in the Airport Noise and Capacity Act of 1990 and spawned the FAA regulations requiring the phaseout of these older airplanes |5; 6~.

Chapter 3 examines consumer demand including the impact of price, income, and various aspects of time cost such as the influence of the hub-and-spoke system. A discussion of the air cargo market is also contained in this chapter. In Chapters 4 and 5, the authors examine the subjects of airline pricing and marketing from a "how to" perspective. The discussion focuses on yield management and includes information on the influence of computer reservation systems and frequent flyer programs.

Chapter 6 contains a detailed discussion of airline route systems and scheduling, including many illustrative charts and graphs. The distinction between a hub-and-spoke and a linear route system is highlighted in this chapter.

The final chapter contains a descriptive account of several other issues. These include airport and air traffic control infrastructure problems, barriers to entry, globalization, and airline finance.

Overall...