Transborder Demand Leakage and the US-Canadian Air Passenger Market

Posted: 14 Mar 2015

See all articles by Omar Elwakil

Omar Elwakil

Postdoctoral Associate

Robert J. Windle

Independent

Martin E. Dresner

University of Maryland

Date Written: October 2013

Abstract

The US-Canadian air traffic market is one of the largest international markets in the world – estimated at 23 million passengers in 2008. The market is currently regulated by an “Open Skies” agreement, which eliminated all restrictions on the frequency of flights, the aircraft flown, and the fares charged on transborder routes. Although there is evidence that consumers have benefited from the Open Skies agreement, there is also evidence that many passengers have chosen to avoid transborder services, and instead fly from airports in US border cities and cross the border by surface transportation. This paper uses a passenger demand model to determine the scope of this “leakage” from transborder routes. In addition, transborder airfares are compared to US domestic airfares to determine whether transborder fares are “excessive”, a potential cause of the leakage. Results show a substantial amount of leakage estimated at over 4.7 million passengers for 2008. Furthermore, after controlling for the impact of route-specific variables, such as market concentration, average fares are 28.2% higher in the transborder market. Finally, policy implications and the future of the transborder air passenger market are discussed.

Keywords: Airfares; Airline alliances; Airport leakage; Low cost carriers; Price premiums

JEL Classification: L09, L93

Suggested Citation

Elwakil, Omar and Windle, Robert J. and Dresner, Martin E., Transborder Demand Leakage and the US-Canadian Air Passenger Market (October 2013). Robert H. Smith School Research Paper No. RHS 2573162. Available at SSRN: https://ssrn.com/abstract=2573162

Omar Elwakil (Contact Author)

Postdoctoral Associate ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Robert J. Windle

Independent ( email )

No Address Available
United States

Martin E. Dresner

University of Maryland ( email )

College Park
College Park, MD 20742
United States

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