Airline-High speed rail cooperation, hub congestion, and airport conduct

Abstract

We study the incentives of an airline and a high-speed rail (HSR) operator to incur sunk costs and cooperate in a hub-and-spoke network with a congested hub airport. Contrary to common wisdom, we find that a high delay cost at the hub reduces incentives to cooperate, and that hub traffic may increase after cooperation. We show that airline-HSR cooperation improves consumer surplus, since higher passenger volumes yield more benefits than incremental delay costs at the hub. We also show that transport operators underinvest in airline-HSR cooperation because (depending on mode substitution and the delay cost) they may not be willing to incur sunk costs when social welfare would be higher under cooperation. We then investigate the rationale and implications of airport price regulation. Finally, we show that transport operators’ and the airport company’s interests may be misaligned, and that airport managers can play a role in encouraging or hindering airline-HSR cooperation, depending on their ability to commit to the airport charge.