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Airline Economics: Foundations for Strategy and Policy.

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, Airline Economics is a good reference book, though it does not provide sufficient detail on the economic concepts to be well suited to the use of the economist.

Arthur S. Leahy(2) Internal Revenue Service and Central Michigan University

1. The terms Stage 2 and Stage 3 refer to the Federal Aviation Administration's classification of aircraft according to their noise levels. For details see 14 CFR Sec. 36.1 and Sec. C36.5.

2. Helpful comments were received from Michael Rossetti. The views expressed are those of the author and do not necessarily reflect the views of the Internal Revenue Service.

References

1. Berardino, Frank, and Earl Bomberger. "Stage II versus Stage III." Airline Business, September 1990, 108-13.

2. Caves, Douglas W., Lauritis R. Christensen, and Michael W. Tretheway. "Economies of Density Versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ." Rand Journal of Economics, Winter 1984, 471-89.

3. Leahy, Arthur S. "Concentration in the U.S. Airline Industry." Unpublished Paper, Internal Revenue Service, July 1993.

4. -----. "The Impact of Rising Fuel Prices on the Aircraft Replacement Decision." New York Economic Review, Fall 1992/Spring 1993, 31-41.

5. Phaseout of Stage 2 Airplanes Operating in the 48 Contiguous United States and the District of Columbia. Docket No. 26433, Notice No. 91-7, 56 Fed. Reg. 8628, February 28, 1991.

6. Transition to an All Stage 3 Fleet Operating in the 48 Contiguous United States and the District of Columbia. Docket No. 26433, Amendment No. 91-225, 56 Fed. Reg. 48628, September 25, 1991.
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Author:Leahy, Arthur S.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jan 1, 1994
Words:611
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