The effect of airline positioning on profit

Transportation Journal

Volumn 39, Issue 3, 2000, Pages 44-54

  Suzuki, Yoshinori ^a  

^a IOWA STATE UNIVERSITY   (United States)

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EID: 0034349057     PISSN: 00411612     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (34)

1. 1 See, for example, M. Dresner and K. Xu, "Customer Service, Customer Satisfaction, and Corporate Performance in the Service Sector," Journal of Business Logistics, 16, No. 1, (1995), 23-40; Y. Suzuki, "The Relationship Between On-Time Performance and Profit: An Analysis of US Airline Data," Journal of the Transportation Research Forum, 37, No. 2, (1998), 30-43. The study by Dresner and Xu (1995) did not incorporate the price attribute exclusively in their regression model, but they controlled the price effect by using carrier dummy variables. Several other studies have empirically estimated air carriers' profit functions, but these studies did not include the service quality variables and/or the price variable in the right-hand side of their regression equations. See, for example, B. Adrangi, G. Chow, and K. Raffiee, "Passenger Output and Labor Productivity in the U.S. Airline Industry after Deregulation: A Profit Function Approach," Logistics and Transportation Review. 32, No. 4, (1996), 389-407; G. S. Carpenter and D. M. Hanssens, "Market Expansion, Cannibalization, and International Airline Pricing Strategy," International Journal of Forecasting, 10, No. 2, (1994), 313-326; R. S. M. Lau and T. H. Mattheiss, "A Markov Model of the Growth and Profitability of the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 2, (1992), 189-205.
2. 1 See, for example, M. Dresner and K. Xu, "Customer Service, Customer Satisfaction, and Corporate Performance in the Service Sector," Journal of Business Logistics, 16, No. 1, (1995), 23-40; Y. Suzuki, "The Relationship Between On-Time Performance and Profit: An Analysis of US Airline Data," Journal of the Transportation Research Forum, 37, No. 2, (1998), 30-43. The study by Dresner and Xu (1995) did not incorporate the price attribute exclusively in their regression model, but they controlled the price effect by using carrier dummy variables. Several other studies have empirically estimated air carriers' profit functions, but these studies did not include the service quality variables and/or the price variable in the right-hand side of their regression equations. See, for example, B. Adrangi, G. Chow, and K. Raffiee, "Passenger Output and Labor Productivity in the U.S. Airline Industry after Deregulation: A Profit Function Approach," Logistics and Transportation Review. 32, No. 4, (1996), 389-407; G. S. Carpenter and D. M. Hanssens, "Market Expansion, Cannibalization, and International Airline Pricing Strategy," International Journal of Forecasting, 10, No. 2, (1994), 313-326; R. S. M. Lau and T. H. Mattheiss, "A Markov Model of the Growth and Profitability of the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 2, (1992), 189-205.
3. 1 See, for example, M. Dresner and K. Xu, "Customer Service, Customer Satisfaction, and Corporate Performance in the Service Sector," Journal of Business Logistics, 16, No. 1, (1995), 23-40; Y. Suzuki, "The Relationship Between On-Time Performance and Profit: An Analysis of US Airline Data," Journal of the Transportation Research Forum, 37, No. 2, (1998), 30-43. The study by Dresner and Xu (1995) did not incorporate the price attribute exclusively in their regression model, but they controlled the price effect by using carrier dummy variables. Several other studies have empirically estimated air carriers' profit functions, but these studies did not include the service quality variables and/or the price variable in the right-hand side of their regression equations. See, for example, B. Adrangi, G. Chow, and K. Raffiee, "Passenger Output and Labor Productivity in the U.S. Airline Industry after Deregulation: A Profit Function Approach," Logistics and Transportation Review. 32, No. 4, (1996), 389-407; G. S. Carpenter and D. M. Hanssens, "Market Expansion, Cannibalization, and International Airline Pricing Strategy," International Journal of Forecasting, 10, No. 2, (1994), 313-326; R. S. M. Lau and T. H. Mattheiss, "A Markov Model of the Growth and Profitability of the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 2, (1992), 189-205.
4. 1 See, for example, M. Dresner and K. Xu, "Customer Service, Customer Satisfaction, and Corporate Performance in the Service Sector," Journal of Business Logistics, 16, No. 1, (1995), 23-40; Y. Suzuki, "The Relationship Between On-Time Performance and Profit: An Analysis of US Airline Data," Journal of the Transportation Research Forum, 37, No. 2, (1998), 30-43. The study by Dresner and Xu (1995) did not incorporate the price attribute exclusively in their regression model, but they controlled the price effect by using carrier dummy variables. Several other studies have empirically estimated air carriers' profit functions, but these studies did not include the service quality variables and/or the price variable in the right-hand side of their regression equations. See, for example, B. Adrangi, G. Chow, and K. Raffiee, "Passenger Output and Labor Productivity in the U.S. Airline Industry after Deregulation: A Profit Function Approach," Logistics and Transportation Review. 32, No. 4, (1996), 389-407; G. S. Carpenter and D. M. Hanssens, "Market Expansion, Cannibalization, and International Airline Pricing Strategy," International Journal of Forecasting, 10, No. 2, (1994), 313-326; R. S. M. Lau and T. H. Mattheiss, "A Markov Model of the Growth and Profitability of the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 2, (1992), 189-205.
5. 1 See, for example, M. Dresner and K. Xu, "Customer Service, Customer Satisfaction, and Corporate Performance in the Service Sector," Journal of Business Logistics, 16, No. 1, (1995), 23-40; Y. Suzuki, "The Relationship Between On-Time Performance and Profit: An Analysis of US Airline Data," Journal of the Transportation Research Forum, 37, No. 2, (1998), 30-43. The study by Dresner and Xu (1995) did not incorporate the price attribute exclusively in their regression model, but they controlled the price effect by using carrier dummy variables. Several other studies have empirically estimated air carriers' profit functions, but these studies did not include the service quality variables and/or the price variable in the right-hand side of their regression equations. See, for example, B. Adrangi, G. Chow, and K. Raffiee, "Passenger Output and Labor Productivity in the U.S. Airline Industry after Deregulation: A Profit Function Approach," Logistics and Transportation Review. 32, No. 4, (1996), 389-407; G. S. Carpenter and D. M. Hanssens, "Market Expansion, Cannibalization, and International Airline Pricing Strategy," International Journal of Forecasting, 10, No. 2, (1994), 313-326; R. S. M. Lau and T. H. Mattheiss, "A Markov Model of the Growth and Profitability of the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 2, (1992), 189-205.
6. 2 For the articles making this claim, see, for example, Suzuki (1998) op. cit., and Dresner and Xu (1995) op. cit.
7. 2 For the articles making this claim, see, for example, Suzuki (1998) op. cit., and Dresner and Xu (1995) op. cit.
8. 3 J. A. Kling and K. A. Smith, "Identifying Strategic Groups in the U.S. Airline Industry: An Application of the Porter Model," Transportation Journal, 35, No. 2, (1995), 26-34.
9. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
10. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
11. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
12. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
13. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
14. 4 Since the conventional airline studies claim that the passenger enplanement is a function of service quality, price, and other exogenous variables, the passenger revenue, which is a product of passenger enplanement and the average ticket price, can be expressed as a function of service quality, price, and other exogenous variables - see, for example, Suzuki (1998) op. cit.; S. M. Nako, "Frequent Flyer Programs and Business Travellers: An Empirical Investigation," The Logistics and Transportation Review, 28, No. 4, (1992), 395-414; M. Dresner and R. Windle (1992), "Airport Dominance and Yields in the U.S. Airline Industry," Logistics and Transportation Review, 28, No. 4, (1992), 319-339; S. Borenstein, "The Dominant-Firm Advantage In Multiproduct Industries: Evidence From The U.S. Airlines," Quarterly Journal of Economics, 106, (1991), 1237-1266. The passenger cost of an airline, on the other hand, is generally expressed as a function of service quality and other exogenous variables such as the output level, input prices, and network size - see, for example. Suzuki (1998), op. cit.; T. H. Oum and W. G. Waters II, "A Survey of Recent Developments in Transportation Cost Function Research," Logistics and Transportation Review, 32, No. 4, (1996), 423-463. Thus the profit of an airline can be written as a function of service quality, price, and some other variables that have significant effect on passenger revenue, passenger cost, or both.
15. 5 G. L. Lilien, P. Kotler, and K. S. Moorthy, Marketing Models, (Englewood Cliffs, NJ: Prentice Hall, 1992), p. 223.
16. 6 See, for example, W. Nicholson, Intermediate Microeconomics, (Orlando, FL: Dryden Press, 1990), p.62.
17. 7 See, for example, B. G. Hardie, E. J. Johnson, and P. S. Fader, "Modeling Loss Aversion and Reference Dependence Effects on Brand Choice," Marketing Science, 12, No. 4, (1993), 378-394.
18. 8 For the readers that are familiar with mathematical programming, it may be easier to consider the region surrounded by the P axis, Q axis, and the possibility frontier as the "feasible region" and the utility function as the "objective function" to be maximized.
19. 9 See, for example, Air Transport World, "Orlando Magic," 33, December, (1996), 59-61; Working-Woman, "The Chaos Theory of Airline Pricing," 22, March, (1997), 30-33.
20. 9 See, for example, Air Transport World, "Orlando Magic," 33, December, (1996), 59-61; Working-Woman, "The Chaos Theory of Airline Pricing," 22, March, (1997), 30-33.
21. 10 Suzuki (1998) op. cit., for example, found that airline accidents decrease an airline's revenue significantly, while the accidents increase the cost of an airline.
22. 11 Suzuki (1998) op. cit.
23. 12 Dresner and Xu (1995) op. cit.
24. 13 U.S. Department of Transportation, Air Carrier Financial Statistics, various editions.
25. 14 U.S. Department of Transportation, Air Carrier Traffic Statistics, various editions.
26. 15 U.S. Department of Transportation, Air Travel Consumer Report, various editions.
27. 16 Air Transport World, various editions.
28. 17 U.S. Department of Transportation web-site: http://www.ntsb.gov/aviation/Paxfatal.htm.
29. 18 Suzuki (1998) op. cit.
30. 19 Fortune, "Why is Airline Food So Terrible?," December 19, (1988), 169-172.
31. 20 See, for example, Suzuki (1998) op. cit.
32. 21 Dresner and Xu (1995) op. cit.
33. 22 Suzuki (1998) op. cit.
34. 2 coefficients must be interpreted as: "the effect of positioning angle on profit holding other things (which does not include per-passenger profit) constant."