Effects of Beijing-Shanghai high-speed rail on air travel: Passenger types, airline groups and tacit collusion

Abstract This paper analyzes the effects of the busiest and most profitable high-speed rail (HSR) line in China — the Beijing-Shanghai HSR — on the aviation markets paralleling this HSR line. In general, we find that both airfare and air travel demand decreased significantly after the entry of the Beijing-Shanghai HSR. In particular, economy-class airfares dropped more than business-class fares did, while the decline in the demand for business-class travel was larger than it was for economy-class travel. The frequency of and the number of seats on the HSR line were significantly and negatively associated with air travel demand, especially with demand for business-class travel. Our results show that the entry of the HSR line led to airfare convergence on the Beijing-Shanghai airline route, which might indicate the existence of tacit collusion among the operating carriers. Governments, airlines and airport authorities need to work together to improve the on-time performance of this profitable route which is currently plagued with frequent flight delays.

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