The Impacts of Open Skies on Transatlantic Service...
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© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 1 The Impacts of Open Skies on The Impacts of Open Skies on Transatlantic Service Levels Transatlantic Service Levels October 29 October 29 th th , 2009 , 2009 Cambridge, MA Cambridge, MA Alex Cosmas Alex Cosmas MIT International Center for Air Transportation MIT International Center for Air Transportation MIT Technology & Policy Program MIT Technology & Policy Program Research Advisors: P. Research Advisors: P. Belobaba Belobaba , W. , W. Swelbar Swelbar
Transcript of The Impacts of Open Skies on Transatlantic Service...
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 1
The Impacts of Open Skies on The Impacts of Open Skies on Transatlantic Service LevelsTransatlantic Service Levels
October 29October 29thth, 2009, 2009Cambridge, MACambridge, MA
Alex CosmasAlex CosmasMIT International Center for Air TransportationMIT International Center for Air Transportation
MIT Technology & Policy ProgramMIT Technology & Policy Program
Research Advisors: P. Research Advisors: P. BelobabaBelobaba, W. , W. SwelbarSwelbar
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 2
OutlineOutline
1. Transatlantic Landscape
2. Research Overview
3. Policy Impacts on Transatlantic Service Levels
4. Results and Conclusions
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 3
U.S. and Europe are Increasingly ConnectedU.S. and Europe are Increasingly Connected
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185
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147 132 144
105 103133
0
50
100
150
200
250
2000 2004 2007 U.S.Carriers
ForeignCarriers
Total PairsServed
Nonstop City Pairs Served from U.S.
Data Source: U.S. DOT T-100 International Segment Data
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 4
U.S. and Europe are Increasingly ConnectedU.S. and Europe are Increasingly Connected
4339
52
4032
41
27 27
42
0
10
20
30
40
50
60
2000 2004 2007 U.S.Carriers
ForeignCarriers
TotalMarketsServed
Nonstop Transatlantic Destinations Served from U.S.
Data Source: U.S. DOT T-100 International Segment Data
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 5
Cities Have Received First Transatlantic Cities Have Received First Transatlantic Service since 2000Service since 2000
Fairbanks, AK
Hartford, CTPortland, OR
Belfast, UKEdinburgh, UKLiverpool, UKConnaught, IrelandMalaga, SpainBelgrade, SerbiaRzeszow, PolandRiga, Latvia
Bristol, UK
Berlin, Germany Bologna, ItalyHamburg, Germany Pisa, ItalyCologne, Germany Naples, Italy
Palermo, Italy
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 6
But Some Cities Have Lost All But Some Cities Have Lost All Transatlantic Service since 1990Transatlantic Service since 1990
Lyon, FranceNantes, FranceBordeaux, FranceLille, FranceZagreb, CroatiaDubrovnik, CroatiaBelgrade, Serbia
Santiago de Compostela, SpainSt. Louis, MO
Pittsburgh, PA
Luxembourg, Luxembourg
Timisoara, RomaniaPonta Delgada, Portugal Satu Mare, RomaniaTerceira, Portugal
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 7
Research QuestionsResearch Questions
• What has driven these changes? Specifically, how has regulation and/or liberalization played a role?
• How has the competitive environment in the transatlantic aviation market evolved since 1990?
• Has transatlantic liberalization led to increased service or competition? Alternatively, has it led to losses for some cities?
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 8
Research ApproachResearch Approach• Stakeholder Analysis
• Analysis 1: Transatlantic Competition– Recent evolution of transatlantic competition– U.S. DOT Data: service offerings, frequencies, a/c size
• Analysis 2: Impacts of Policy Changes– Transatlantic Open Skies Agreements– Granting of Antitrust Immunity
• Analysis 3: Econometric Market Model– Aggregate U.S. city and European city service levels– Correspondence with Policy Changes
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 9
U.S.U.S.--EU Open Skies AgreementEU Open Skies Agreement
• On April 30, 2007 EU and U.S. authorities signed a first stage Open Skies accord
– Allows EU airlines to operate direct flights between U.S. and any EU country (and some others)
– Allows U.S. airlines reciprocal right, and ability to fly between cities in different EU countries
– Elimination of the nationality clause
• EU officials have made liberalized foreign control a prerequisite for a 2nd Stage agreement
1. Match EU’s 49% foreign control restriction2. U.S. domestic market lucrative as standalone and hub-feeder
• Cabotage rights only granted to U.S. citizen airlines• U.S. incorporation requires meeting ownership caps• Without control, network composition cannot be shaped
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 10
U.S.U.S.--European Open Skies AgreementsEuropean Open Skies Agreements
Source: Analysis of BTS T-100 Segment Data1 Country had no service in period before or after signing of agreement
Country Date Signed
City Pairs Departures Passengers
Enplaned Competitors Conclusive
Increase from Open Skies?
Netherlands 10/14/1992 ▲ ▼ ▲ ▲ Yes Belgium 3/1/1995 ▲ ▲ ▲ ▬ Yes Finland 3/24/1995 ▬ ▼ ▼ ▼ No
Denmark 4/26/1995 ▼ ▼ ▼ ▼ No Norway 4/26/1995 ▲ ▲ ▲ ▼ Yes Sweden 4/26/1995 ▼ ▲ ▲ ▼ No
Luxembourg1 6/6/1995 ▬ ▬ ▬ ▬ No Austria 6/14/1995 ▲ ▲ ▲ ▼ Yes Iceland 6/14/1995 ▲ ▲ ▲ ▬ Yes
Switzerland 6/15/1995 ▲ ▲ ▲ ▲ Yes Czech Republic 12/8/1995 ▼ ▼ ▼ ▬ No
Germany 2/29/1996 ▲ ▲ ▲ ▲ Yes Romania 7/15/1998 ▲ ▼ ▼ ▬ No
Italy 11/11/1998 ▲ ▼ ▼ ▲ No Portugal 12/22/1999 ▼ ▼ ▼ ▼ No
Slovak Republic1 1/7/2000 ▬ ▬ ▬ ▬ No Turkey 3/22/2000 ▲ ▼ ▼ ▲ No
Malta 10/12/2000 ▼ ▬ ▬ ▼ No Poland 5/31/2001 ▲ ▼ ▼ ▼ No France 10/19/2001 ▲ ▼ ▼ ▼ No
Albania1 9/24/2003 ▬ ▬ ▬ ▬ No osnia & Herzegovina1 11/22/2005 ▬ ▬ ▬ ▬ No
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 11
Case Study 1: The NetherlandsCase Study 1: The NetherlandsNumber of City Pairs U.S. – Netherlands
0
2
4
6
8
10
12
14
16
18
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Destinations Netherlands Destinations Total City Pairs
Monthly Departures (July) - U.S. to Netherlands
0
200
400
600
800
1,000
1,200
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Num
ber o
f Dep
artu
res
Number of Carriers Serving U.S. – Netherlands
0
2
4
6
8
10
12
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Carriers Non-U.S. Carriers Total Carriers
Monthly Enplanements (July) - U.S. to Netherlands
0
50,000
100,000
150,000
200,000
250,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Pass
enge
r Enp
lane
men
ts
Service Level 5-Year Pre Avg. 5-Year Post Avg. Service Changes
# of City Pairs 9.67 11.20 Increase
# of Competitors 7.67 9.00 Increase
Departures Annual Growth Rate 11.08% 10.20% Decrease
Enplanements Annual Growth Rate 5.55% 13.69% Increase
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 12
Case Study 2: BelgiumCase Study 2: Belgium Number of City Pairs U.S. – Belgium
0
2
4
6
8
10
12
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Destinations Belgium Destinations Total City Pairs
Monthly Departures (July) - U.S. to Belgium
0
50
100
150
200
250
300
350
400
450
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Num
ber o
f Dep
artu
res
Number of Carriers Serving U.S. – Belgium
0
1
2
3
4
5
6
7
8
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Carriers Non-U.S. Carriers Total Carriers
Monthly Enplanements (July) - U.S. to Belgium
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Pass
enge
r Enp
lane
men
ts
Service Level 5-Year Pre Avg. 5-Year Post Avg. Service Changes
# of City Pairs 4.40 7.20 Increase
# of Competitors 5.60 5.60 None
Departures Annual Growth Rate 2.60% 9.91% Increase
Enplanements Annual Growth Rate -3.09% 15.48% Increase
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 13
Case Study 3: FinlandCase Study 3: Finland Number of City Pairs U.S. – Finland
0
1
2
3
4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Destinations Finland Destinations Total City Pairs
Monthly Departures (July) - U.S. to Finland
0
10
20
30
40
50
60
70
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Num
ber o
f Dep
artu
res
Number of Carriers Serving U.S. – Finland
0
1
2
3
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Carriers Non-U.S. Carriers
Monthly Enplanements (July) - U.S. to Finland
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Pass
enge
r Enp
lane
men
ts
Service Level 5-Year Pre Avg. 5-Year Post Avg. Service Changes
# of City Pairs 2.20 2.20 None
# of Competitors 2.00 1.20 Decrease
Departures Annual Growth Rate 9.93% -7.02% Decrease
Enplanements Annual Growth Rate 12.96% -5.73% Decrease
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 14
Case Study 4: DenmarkCase Study 4: Denmark Number of City Pairs U.S. – Denmark
0
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Destinations Denmark Destinations Total City Pairs
Monthly Departures (July) - U.S. to Denmark
0
50
100
150
200
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Num
ber o
f Dep
artu
res
Number of Carriers Serving U.S. – Denmark
0
1
2
3
4
5
6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
U.S. Carriers Non-U.S. Carriers Total Carriers
Monthly Enplanements (July) - U.S. to Denmark
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Pass
enge
r Enp
lane
men
ts
Service Level 5-Year Pre Avg. 5-Year Post Avg. Service Changes
# of City Pairs 4.80 3.00 Decrease
# of Competitors 3.60 1.60 Decrease
Departures Annual Growth Rate 0.04% -6.29% Decrease
Enplanements Annual Growth Rate -3.45% -8.72% Decrease
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 15
Impacts of Open Skies on Service LevelsImpacts of Open Skies on Service LevelsCountry Date Signed City Pairs Departures Passengers
Enplaned CompetitorsOverall Change Following Open
Skies?Netherlands1 10/14/1992 ▲ ▼ ▲ ▲ Increase
Belgium 3/1/1995 ▲ ▬ ▲ ▬ Increase
Finland 3/24/1995 ▬ ▬ ▼ ▼ Decrease
Denmark 4/26/1995 ▼ ▬ ▬ ▼ Decrease
Norway 4/26/1995 ▬ ▬ ▬ ▼ Decrease
Sweden 4/26/1995 ▬ ▬ ▲ ▼ Inconclusive
Luxembourg 6/6/1995 ▬ ▬ ▬ ▬ Inconclusive
Austria 6/14/1995 ▬ ▬ ▲ ▬ Increase
Iceland 6/14/1995 ▲ ▲ ▲ ▬ Increase
Switzerland 6/15/1995 ▲ ▲ ▬ ▲ Increase
Czech Republic 12/8/1995 ▬ ▼ ▼ ▬ Decrease
Germany 2/29/1996 ▲ ▬ ▬ ▬ Increase
Romania 7/15/1998 ▬ ▬ ▬ ▬ Inconclusive
Italy 11/11/1998 ▲ ▬ ▬ ▬ Increase
Portugal 12/22/1999 ▬ ▬ ▬ ▬ Inconclusive
Slovak Republic2 1/7/2000 ▬ ▬ ▬ ▬ No Service
Turkey 3/22/2000 ▬ ▬ ▼ ▬ Decrease
Malta2 10/12/2000 ▬ ▬ ▬ ▬ No Service
Poland 5/31/2001 ▬ ▬ ▬ ▬ Inconclusive
France 10/19/2001 ▼ ▼ ▬ ▼ Decrease
Albania2 9/24/2003 ▬ ▬ ▬ ▬ No ServiceBosnia & Herzegovina2 11/22/2005 ▬ ▬ ▬ ▬ No Service
1 Wilcoxon Rank Sum test could not be performed on the Netherlands due to a lack of available data prior to 19902 Country had no service after signing of agreement▬ Indicates no statistically significant change
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 16
Econometric Model ResultsEconometric Model Results
• For U.S. markets– Population, economic presence, and distance correlate very
strongly with level of service– Whether the city serves as a hub has insignificant explanatory
power
• For European markets– Population and distance have very weak explanatory power for
European cities– In contrast, whether the city serves as a hub for a Big-3 carrier is
the dominant factor in explaining level of service– GDP is dominant factor for European country service levels– Existence of an Open Skies agreement does not have significant
correlation to service level to the U.S.
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 17
ConclusionsConclusions
1. Liberalization has yielded both increases and decreases in service since 1990• No statistically significant correlation between existence of an Open
Skies Agreement and service levels to that country
2. Existence of Big-3 carrier hubs do more to explain transatlantic service levels of various cities than the size or economic power of those cities, proximity to the U.S. or even the presence of an Open Skies agreement
3. U.S. carriers are capturing a disproportionate share of new service by leveraging the network effects from their hubs, much like theEuropean model
4. As competition has increased: U.S. cities that have gained nonstop transatlantic service have been connected to Big-3 European hubs, and vice versa
© 2009 Alex Cosmas, Department of Aeronautics and Astronautics, Massachusetts Institute of Technology 18
Thank YouThank You
