Route Competition in Multi-Airport Cities: An Analysis of US Air Fares

When there is only one airport in the origin and destination cities of a given route market, the assessment of level of competition in an airline route market can be straightforward. The presence of more than one airport at the origin or destination cities, however, makes the measurement of route competition much more difficult. This research measures competition at both the airport pair and city pair levels to empirically separate the impacts of direct and adjacent competition on yields in multi-airport cities. The analysis of a large panel data set from the US airline industry reveals that airport pairs within a metropolitan area appear to be effective yet imperfect substitutes. That is, while competition at adjacent airport pairs does have significant effect on fares in a focal airport pair market, this effect is found to be markedly smaller than that of added competition in the focal airport-to-airport route market. In addition, the effects of airport location relative to the population epicenter, the extent of airport congestion, and a carrier's strategic type on yields and passenger demand are assessed. Implications for policymakers and managers are discussed and directions for future research are provided.

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