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    The Geography of Deregulation in the U.S. Airline IndustryAndrew R. Goetza; Christopher J. Suttonba Depatment of Geography, University of Denver, b Department of Socail Sciences, Northwestern State

    University, Louisiana

    Online publication date: 15 March 2010

    To cite this Article Goetz, Andrew R. and Sutton, Christopher J.(1997) 'The Geography of Deregulation in the U.S. AirlineIndustry', Annals of the Association of American Geographers, 87: 2, 238 263

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    The Geography of Deregulation in theU.S. Airline Industry

    Andrew R. Goetz* and Christopher J. Sutton**

    *Department of Geography, University of Denver**Department of Social Sciences, Northwestern State University of Louisiana

    The U.S.domestic airline industry wasderegulated in 1978 as part of a regulatoryreform movement

    that has transformed the banking, telecommunications, energy, and transportation industries. A

    geographyof deregulation has emerged conformingto a core-periphery structure in whichindustries

    are increasingly controlled by fewer firms through their major headquarters and operations centers.

    As a consequence of industry consolidation and the shift to hub-and-spoke network service

    structures, strong domestic hubs (e.g., Dallas, Chicago, Atlanta) and international gateway cities

    (e.g., Los Angeles, New York, San Francisco) have emerged as the core control centers of the

    air-transport system, while spoke cities have become peripheralized in the process. The group ofcore centers has benefited more than the periphery from increased air transportation employment,

    frequency of service, passenger flow, and lower fares, except in cases where hubs were dominated

    by one or two airlines, where fares rose. The latter is manifested in a pattern of higher fares in the

    more concentrated hubs of the southeastern U.S. and their peripheral hinterlands. Key Words:

    airlines, concentration, core-periphery, deregulation, hubs.

    Deregulation continues to be one of themost important forces shaping the futureof industries such as transportation,

    banking,and telecommunications.Thispaperex-plores the geography of deregulation by focusingon the case of the U.S. domestic airline industry,which, in 1978, became one of the first to besignificantly deregulated. It is thus a test case ofderegulations ability to improve economic effi-ciency and consumer choice in industries with astrong public-interest dimension. Although nu-merous benefits from deregulation have beenclaimed, mounting evidence from the airline andother industries reveals that impacts are ex-tremely uneven across space. The purpose of thispaper is to show that thegeographic effects of thederegulation of the airline industry are conspicu-ous, are consistent with other deregulated indus-tries, and conform to a core-periphery pattern.

    Following a review of the history and rationaleof themovement forairline deregulation, and theliterature on the spatial effects of deregulationacross industries, the paper deploys a core-periphery approach as an analytical frameworkfor understanding post-deregulation changes inthe spatial dynamics of the airline industry. De-regulations geographic effects from 19781993are examined with respect to industry structure,

    service, and pricing. Particular attention is de-voted to core-periphery contrasts as well as re-g i on a l p a tt er n s o f c ha ng e i n m ar ke tconcentration, employment, service frequencies,passenger flows, and air fares. The associationbetween industry concentration and higher airfares in markets dominated by only one or twoairlines is of particular concern.

    Regulation, Deregulation, and theU.S. Airline Industry

    Formal regulation of air transportation wasinstituted by the U.S. Congress through promul-gation of the Civil Aeronautics Act of 1938. ThisAct created the Civil Aeronautics Authority(later reorganized as the Civil Aeronautics Board[CAB]) and authorized it to control route entry

    and exit of air carriers, regulate fares, award sub-sidies, and control mergers and inter-carrieragreements(Bailey et al. 1985). Regulationof theairlines was deemed necessary to prevent de-structive competition from damaging a fledglingindustryvital tothefuture securityandcommerceof the nation (Sampson et al. 1990).

    Following World War II, analysts began toquestion the merits of continued economic

    Annals of the Association of American Geographers, 87(2), 1997, pp. 2382631997 by Association of American GeographersPublished by Blackwell Publishers, 350 Main Street, Malden, MA 02148, and 108 Cowley Road, Oxford, OX4 1JF, UK.

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    regulation in a maturing and more competitivelybalanced industry. By the 1960s1970s, severaleconomic studies of regulatory inefficiencies(Caves 1962; Levine 1965; Jordan 1970; Keeler1972; Douglas and Miller 1974) together with

    Congressional hearings led by Senator EdwardKennedy (with the assistance of Stephen Breyer)contributed directly to a reconsideration of regu-latory policy. An economic and political consen-sus was emerging that regulation as practiced wasinefficient and restricted thegrowth of the indus-try. As a result, Congress passed and PresidentCarter signed into law the Airline DeregulationAct of 1978. In essence, this Act stripped theCAB of its authority to control entry and exit,fares, subsidies, and mergers. Today, carriers thatare fit, willing, and able can serve any route andcharge fares to any level that they deem appropri-

    ate (Morrison and Winston 1986).Political support for deregulation has been bi-partisan. While Carter, Kennedy, and otherDemocrats spearheaded the airline and otherearly reforms, the Reagan Administration andCongressional Republicans expanded deregula-tion within the railroad, bus, trucking, banking,savings and loan, long-distance telephone, cabletelevision, and radio and television broadcastingindustries in the early 1980s (Meiners and Yandle1989; Dempsey and Goetz 1992). Deregulationwas warmly embraced by both political parties asa strategy for reducing government involvementin economic affairs. Both sides of the political

    aisle regarded regulators with increasing suspi-cion, seeing them either as captives of the indus-try they were supposedly regulating or asunnecessary bureaucrats constraining the freeflow of business (Derthickand Quirk1985; Braun1987; Himmelberg 1994).

    Industry and public constituency groups gen-erally supported the deregulationmovement. Af-ter initial reluctance, the major airlines (led byUnited) becamestaunch proponentsof deregula-tion. Likewise, the general public favored lessregulation principally because the change wasbeing promoted as pro-consumer. Only organized

    labor mounted serious opposition to the move-ment, but labors political clout had diminishedfollowing the Reagan Administrations firing ofstriking airtraffic controllers in 1981(Kahn1983;Brown 1987).

    The removal of regulatory restraint has hadprofound consequences for the structure of theU.S.airline industry.Duringthefirst several yearsafter deregulation began, smaller local service,

    intrastate, and charter airlines as well as severalnew carriers (e.g., People Express, New York Air,Midway) challenged the dominance of the tenmajor trunk airlines (United, American, Delta,Eastern, TWA, Western, Pan Am, Continental,

    Braniff, and Northwest) (Meyerand Oster 1984).In the face of this competition, the ten majors(former trunks) saw their market share of domes-tic revenue passenger miles slip from 87 percentto 75 percent between 1978 and 1983 (Bailey etal. 1985).

    But in the next five years (19831988), theairline industry experienced a massive wave ofbankruptcies, mergers, and acquisitions. Morethan 200 carriers folded or were absorbed, indus-try-wide concentration increased, and themajorsreestablishedtheirdominance. By 1990, thecom-bined market share of the nine largest airlines

    (American, United, Delta, Northwest, Conti-nental, USAir, TWA, Pan Am, and Eastern) was92 percent of domestic revenue passenger miles(Williams 1993). Concentration levels increasedfurther between 1990 and 1993 as Pan Am, East-ern, Braniff, and Midway1 ceased operations, andas other carriers experienced severe financial in-stability. Continental, TWA, and America Westentered Chapter 11 bankruptcy (the second timefor Continental), while Northwest and USAirthreatened bankruptcy. By 1995, a number ofnew small airlines had started operations, but theindustry remained as concentrated as ever. Sincethe onset of deregulation in 1978, the industry

    has been transformed from a regulated oligopolyof ten trunk carriers controlling 87 percent of themarketto an unregulated oligopoly of eight majorcarriers controlling 93 percent in 1995 (Bailey etal. 1985; U.S. Industry Traffic . . . 1995).

    Deregulation was largely premised on the the-ory that the market for an unregulated airlineindustry would approximate a perfectly competi-tive one with numerous carriers (because sunkcosts were minimal) andno significant economiesof scale or barriers to entry (Kahn 1977). Thetheory of contestable markets buttressed the pre-vailing view by postulating that even the threat

    of new entry would not allow large firms to exer-cise monopoly power (Baumol et al. 1982; Baileyand Panzar 1981). By the late 1980s, however, ithad become apparent that larger carriers heldsignificant advantages, mainly in the form ofeconomies of scope and network density, rein-forced by their control of computer reservationsystems and airport capacity via long-term gateleases as well as more attractive frequent-flyer

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    and major air accidents is lower today (thoughthis may be in spite of deregulation rather thanbecauseof it; see Nader and Smith 1993). On theother hand, the industry has lost more moneythan ever, industry concentration has increased

    as the number of major airlines has declined, andfares have increased at the most concentratedairports, i.e., those where oneor twocarriers havedominant market shares.

    In sum, deregulation has had a major impact onindustrial structure, service, pricing, and the finan-cialconditionof theU.S.airlines.Yetoneof deregu-lations most important impacts has beengeographic,namelythe uneven changes in levelsofindustry concentration, service, and pricing in theU.S. space-economy. This geographic impact wasnot entirely unexpected, however, since previousresearch on deregulated industries reveals that the

    locational effects of this policy are substantial.

    The Spatial Effects of Deregulation

    Recent deregulation initiatives in transporta-tion, banking, telecommunications, and other in-dustries have resulted in the upheavals ofbankruptcies, mergers, acquisitions, and, in theend, industry consolidation (Ravenscraft 1987).The literature is less decisive on whether theincreased consolidation has actually curtailedcompetition (National Research Council 1991).Certain trends become clearer, however, whenwe

    examine their spatial effects. The transition froma relatively stable regulated environment to amore turbulent deregulated one has resulted inwide geographic variations in individual marketconcentration, service, and pricing, with outcomesthat generally favor larger markets in major metro-politan areas (Cooke 1992; Love et al. 1992; Deb-bage 1993; Graham 1993). A clearer picture ofderegulations spatial impacts is emerging, but dis-crepancies within and among industries remain.

    Several studies have shown that industrial con-solidation in the wake of deregulationhasledto thespatial concentration of corporate power in head-

    quarters and major operations centers and to thegeographic expansion of corporatecontrol throughenlarged market hinterlands.The lifting of restric-tions on U.S. interstate banking, for example,resulted in geographic expansion by large corpo-rations through increased merger and acquisitionactivity (Lord 1992). The control-center loca-tions of many of the acquiring banks (e.g., LosAngeles, Charlotte, Boston, Atlanta) benefited

    from mergers, while the locations of the acquiredcompanies tended to be disadvantaged. Similarly,deregulated telecommunications firms increas-ingly formed horizontal, spatially-strategic alli-ances and joint ventures that minimized

    competitive threats (Cooke 1992). And in thederegulated Canadian and Australian airline in-dustries, markets have been dominated by justtwo carriers each after several years of deregula-tion (Australian Bureau of Transport and Com-munication Economics 1994; Small 1993). InEurope, liberalization of air transport, allowinggreater access to more markets, has producedvery few new entrants and thus is expected tobenefit larger global carriers and their hub citiesat the expense of smaller national airlines andtheir capital cities (Debbage 1994; Dennis 1994).Airline industry liberalization in the East Asian

    Newly Industrialized Countries (NICs) has beenguided by pragmatism more than laissez-faire ide-ology, and thus the state has limited the extent towhich private carriers areallowed to control mar-kets (Bowen and Leinbach 1995). Deregulationalso tends to increase infrastructural concentrationat certain nodes in response to market potentials(Mitchelson and Wheeler 1994).

    Most studies have found that better serviceand lower prices are associated with larger andmore competitive markets. Deregulation allowedbanks to withdraw from poorer neighborhoodsand small communities in favor of more lucrativemarkets (Christopherson 1993). Deregulation in

    telecommunications curtailed cross-subsidiza-tion of smaller rural areas by larger urban centersresulting in the reappearance of uneven serviceover space (Cooke 1992). Deregulation of legalservices in England and Wales resulted not onlyin wide spatial variations in fee levels and lowerprices for legal services overall, but also in higherfees in the more concentrated markets (Love etal. 1992). Additionally, smaller markets tendedto be more concentrated because entry into themwas perceived to be more difficult. Liberalizationin the U.K. airline industry resulted in increasedcompetition on dense routes out of London

    Heathrow, a sustained increase in traffic, muchbetter cabin service, vastly improved frequencies,and cheaper fares (Graham 1993). Competitionon other routes in the U.K., however, tended tobe uneven. Australian transport deregulationhasfavored larger markets at the expense of smallerones (Parolin and Harrington 1992).

    Previous research on the geographic effects ofairline deregulation in the U.S. has uncovered a

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    variety of findings. During the 1980s, a few largeairlines dramaticallyexpanded theirgeographicalreach and exercised greater control over more airmarket hinterlands (Fleming 1991; Sorenson1991). Deregulation also led to an attenuation of

    competition through consolidation and bank-ruptcy (Graham 1993) and the emergence ofdominant centers in the service networks of themajor U.S. airlinesas reflected in the high con-nectivity indices of a few key nodes (Shaw 1993).Network concentration, as measured by Gini in-dices, also became more pronounced as a resultof deregulation (Reynolds-Feighan 1992). Thatsaid, the evidence on nodal accessibility (definedas the degree to which people in a city are able totravel to other cities through airline services) forthe 84 largest cities in the 19801989 period wasmore evenly distributed than in the 19701980

    period (Chou 1993). Also, interurban accessibil-ity (defined by air travel times) over the sameperiod held steady for a group of seven Ohio citiesand major U.S. air passenger destinations (Ma-raffa and Finnerty 1993). These findings suggestthat post-deregulation passengers in many citieshave not experienced a decline in accessibility,notwithstanding that they must travel increas-ingly via specific nodes and that fewer and largerairlines exercise increased control over more hin-terlands. These differentpatterns of service, pric-ing, connectivity, and accessibility point to a needto synthesize recent results within a more coordi-nated and coherent spatial framework.

    Deregulation and SpatialFrameworks

    The deregulation of the airline industry hasmeantthattheairlinesnowcontroldecisionmakingwith regard to service entry and exit, pricing,bank-ruptcies, and to a lesser extent mergers and acqui-sitions (the Department of Justice was givenauthority in 1988 to deny proposed mergers andacquisitionson antitrust grounds).Changesin theseaspects of the airline industry will be manifested in

    spatial differentials in the levels of market concen-tration,employment, service frequencies,enplanedpassengers, and fares. The removal of regulatoryrestraint in the airline and other industries shouldreveal, moreover, dramatic and exaggerated spatialimpacts owing to the suddenness of the shift indecision making and control away from regulatoryagencies to individual firms, and to the greaterlikelihood of monopolistic behavior.

    The choice of a theoretical framework for theexamination of these impacts includes thosebased on neoclassical economics (e.g., spatial in-teraction modelsand central-place formulations)as well as social theory and neo-Marxian political

    economy. One framework that seems particularlyappropriate in accounting for the spatial eco-nomic processes unleashed by deregulation is thecore-periphery model. It is well-suited for thisstudy because it has direct spatial applicability;incorporates inherent efficiencies and advan-tages associated with particular locations; andacknowledges the dimensions of dominance,power, and control (Green 1987; Lord 1992).Furthermore, a core-periphery approach does notunduly limit our interpretations of the empiricalevidence. The key issue is whether cores andperipheries both benefit from an industry domi-

    nated by the core, or whether cores benefit at theexpense of the periphery.The core-periphery model has been used ex-

    tensively in geography, economics, and politicalscience principally as a way to understand spatialvariations in levels of development over regionsat intranational and international scales. Thefollowing section summarizes its major featuresand its relevance to the current study.

    Core-Periphery Dynamics

    In a general context, cores are distinguished

    from peripheries by three principal features: (1)the economic development and cultural attrib-utes of each, (2) the nature and direction ofexchangesbetween coresand peripheries, and (3)the interaction patterns between cores and pe-ripheries (Galtung 1971; Wellhofer 1988). Char-acteristically, cores exhibit higher levels ofdevelopment, higher standards of living, morehighly skilled workers, and larger capital invest-ments per worker, and are the centers of politicalpower, cultural domination, and military supe-riority (Wallerstein 1974). In exchange relations,cores exportmore high value-added commodities

    and services, while peripheries export primaryand semifinished products (Johnston 1982). Corestend to dominate interactionand to mediate directperiphery-to-periphery connections; they are thehubs of transportation and communications net-works (Galtung 1971; Wellhofer 1988).

    Green (1990) used the core-periphery frame-work to understand the geographical effects ofindustrial mergers and acquisitions. Mergers, he

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    observed, tend to consolidate power and controlin cores at theexpense of peripheries.Commandand control centers within the core of nationalurban systems (Green 1987; Borchert 1978;Wheeler 1988) benefit from increased merger

    activity by expanding their control over moreextensive hinterland regions. In his analysis ofbanking mergers, Green further subdivided thetraditional core-periphery dichotomy into foursegments: the core, semi-core, semi-periphery,and periphery. The core had the highest degreeof internal and external connectivity, and thusoccupied a dominant position in the system. Thesemi-core resembled the core in many respectsbut lacked thesame level of internal interconnec-tion. Thesemi-periphery had stronger linkages tothe core than the periphery, but had virtually nointernal interconnections. The periphery had

    very weak levels of integration into the systemoverall.Whenapplied to airline-industry deregulation,

    thecore-peripherymodel suggests that one of thekey spatial effects of deregulation would be theemergenceand dominanceof certain core controlcenters as the most powerful airlines increasedconsolidation of the industry and implementedhub-and-spoke service networks. As these con-trol centers, located at the hubs, become thepivotal nodes in the air transportation system forarticulating and mediating spatial interaction,their advantages from this dominant position arecompounded.

    The proliferation of hub-and-spoke networkstructures and the emergence of powerful hubssince 1978 underscore these core-periphery dy-namics. The 29 cities designated in 1991 by themajor U.S. carriers as their principal operationscenters or hubs (Ivy 1993) divide into two prin-cipal types: (1) domestic hubs or (2) internationalgateways (Debbage 1993; Goetz 1993). Domestichubs serve as major connecting complexes for theairlines. Functioning as focal points of the hub-and-spoke networks with high degrees of domes-tic connectivity, these hubs are usually located ininterior cities (e.g., Chicago, Atlanta,Dallas) (Ta-

    ble 1). International gateways serve, meanwhile,as funnels for international service, and whilethey have very good connections to other largemarkets, they do not function as true domestichubs.Thesegateways areusually found,of course,in large coastal cities (e.g., New York, Miami, LosAngeles).2

    Viewedwithin a core-periphery framework, wemaydenoteall citiesfunctioning asdomestic hubs

    or international gateways as constituting thecore, i.e., as hub cores and gateway cores, respec-tively. Although these core sites function as con-

    trol centers for the airlines, their passengerprofiles (i.e., local versus connecting, domesticversus international) differ, as do their levels ofmarket concentration, service, and fares.

    The semi-core consists of other FAA-definedlarge and medium-sized air traffic cities (e.g.,Tampa, Portland, Kansas City) that do not serveas major hubs or gateways buthave relatively highlevels of connectivity.3 These cities have strong

    Table 1. Core Centers of the U.S. DomesticAirline Industry

    City Major Airline(s)

    Domestic Hubs

    Atlanta DeltaBaltimore USAirCharlotte USAirChicago United, AmericanCincinnati DeltaCleveland ContinentalDallas-Fort Worth American, Delta,

    SouthwestDenver UnitedDetroit NorthwestHouston Continental,

    SouthwestLas Vegas America WestMemphis NorthwestMinneapolis Northwest

    Nashville AmericanNewark ContinentalPhiladelphia USAirPhoenix America WestPittsburgh USAirRaleigh-Durham AmericanSt. Louis TWASalt Lake City DeltaWashington United, USAir

    International GatewaysBoston Delta, USAir,

    NorthwestLos Angeles United, Delta,


    Miami American, Delta,USAir

    New York American, Delta,USAir, TWA

    San Francisco UnitedSeattle United, Alaska,


    Sources: FAA 1993; Ivy 1993; Debbage 1993; Goetz 1993;Shaw 1993; Williams 1993.

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    linkages to core centers, but tend to have fewerinterconnections.

    Allremaining points receiving airservicearepartof the periphery. The semi-periphery consists ofmoderately-sized cities that serve as spokes pos-

    sessing reasonably good connections to the core,and whatwe will call the far periphery consists ofsmaller communities further down the urban hier-archy. For the purposes of this study, the semi-periphery is considered to be any of theFAA-defined small air-traffic cities (approximately61 cities, e.g., Birmingham, Alabama; Dayton,Ohio; Providence, Rhode Island) while thefarordistant periphery includes all FAA-defined non-hubs (approximately 384 cities, e.g., Duluth, Min-nesota;Durango,Colorado;Starkville,Mississippi).Table2 summarizes thefunctionalattributes ofeachcore-periphery category.

    Using this spatial classification, the study ex-amines the effects of deregulation on the core-periphery structure of the U.S. airline industry.Given that industry consolidation increased themarket power of fewer airlines, it is hypothesizedthat air traffic is increasingly controlled by the corecentersand thatthese placesbenefit fromincreasedairline employment, higher levels of service, morepassenger flow, and lower fares; peripheral loca-tions, by contrast, will be relatively (and perhapsabsolutely) disadvantaged. It is expected moreoverthat therewill be a decline in benefits acrossclassesfrom the core to the periphery.

    The Geographic Effects of AirlineDeregulation

    Geographic Changes in Industry Structure

    Market Concentration. Before 1978, theCivil Aeronautics Board attempted to maintain a

    competitive balance in the airline industrythrough its power to authorize mergers, assignlucrative routes to ailing carriers, and restrict farelevels. While airlines had centers of operations,the CAB prevented any single carrier from be-

    coming too dominant in any particular market.Under deregulation, carriers have been able to

    locate their activities wherever they deem mostappropriate. One of the clearest geographic ef-fects of this change has been the domination ofone airline (or sometimes two) over passenger airtransportation in domestic hub centers4 (Table3). Between 1978 and 1993, every domestic hubcore except Cleveland experienced an increase insingle carrier concentration. In 12 of the 22 hubcores as of 1993, one carrier accounted for morethan 60 percent of their traffic, and 9 hubs re-ported more than 70 percent concentration.

    These high levels of concentration at hub coresreflect the increases in both hub-and-spoke op-erations and industrial consolidation. Onceentryand exit regulations were removed and carriersadopted hub-based networks, carriers concen-trated traffic, personnel,and infrastructure at keypoints in their systems. The development of for-tress hubscities where no other carriers wereab le to e s tab l i sh beachheads of opera-tionemerged as a key strategy formajor airlinesfacingcompetitive threats from newentrants intothe industry.

    Hub dominance was reinforced through theComputer Reservation Systems (CRSs) of the

    larger carriers. Almost all airlines and travelagent s u se one o f the ma jor c a r r i e r s CRSseither Americans Sabre system, UnitedsApollo system (USAir is a part-owner), Conti-nentals System One, or the Worldspan system ofTWA, Northwest, and Deltato sell flights toconsumers (Borenstein 1992). Smaller airlines donot own CRSs, and hence most rely on the larger

    Table 2. Functional Attributes of Core-Periphery Classification, 1993

    Percentage Averageof Total Percentage Percentage Yield

    Percentage Transportation of Total of Total Average (cents perNo. of of Centers Employment Flight Enplaned One-Way passenger

    Centers Concentrated (1992) Departures Passengers Fare mile)

    Hub core 22 54.5 43.8 48.9 52.7 $163.81 17.85Gateway core 6 0.0 23.7 16.8 20.0 $161.54 12.42Semi-core 25 4.0 8.9 15.7 15.5 $137.59 13.90Semi-periphery 61 21.3 7.9 11.2 7.8 $166.47 16.94Far periphery 384 79.1 12.9 7.4 3.9 $182.39 21.28

    Sources: U.S. Federal Aviation Administration, 1993; U.S. Bureau of the Census 1992; U.S. DOT RSPA Forms T-3 and 298-C1993; Back Associates 1993; and authors calculations.

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    Table 3. Market Concentration at Domestic Hub Coresa

    City 1978 1988 1993Airline % Airline % Airline %

    Atlanta Delta 49.7 Delta 58.4 Delta 83.5

    Eastern 39.2 Eastern 34.6 American 2.3Total 88.9 Total 93.0 Total 85.8

    Baltimore Eastern 26.1 Piedmont 58.7 USAir 52.8United 25.9 American 7.7 American 12.0

    Total 52.0 Total 66.4 Total 64.8

    Charlotte Eastern 74.8 Piedmont 92.6 USAir 94.6Delta 13.4 Delta 2.1 Delta 2.2

    Total 88.2 Total 94.7 Total 96.8

    Chicago United 32.6 United 45.1 United 42.5American 18.9 American 27.1 American 32.1

    Total 51.5 Total 72.2 Total 74.6

    Cincinnati Delta 35.1 Delta 77.6 Delta 89.8American 29.4 USAir 4.0 USAir 2.6

    Total 64.5 Total 81.6 Total 92.4

    Cleveland United 63.4 USAir 25.2 Continental 42.1American 12.3 Continental 24.3 USAir 11.7

    Total 75.7 Total 49.5 Total 53.8

    Dallas/Ft. Worth Braniff 34.4 American 57.0 American 53.1American 30.2 Delta 23.0 Delta 25.2

    Total 64.6 Total 80.0 Total 78.3

    Denver United 32.0 United 44.5 United 51.8Frontier 19.9 Continental 40.7 Continental 30.9

    Total 51.9 Total 85.2 Total 82.7

    Detroit American 21.6 Northwest 59.9 Northwest 73.1Delta 21.3 American 7.1 Southwest 4.7

    Total 42.9 Total 67.0 Total 77.8

    Houston Texas Intl 18.6 Continental 52.6 Continental 55.7Continental 18.5 Southwest 24.4 Southwest 25.1

    Total 37.1 Total 77.0 Total 80.8

    Las Vegas Hughes AW 23.6 America West 33.7 Southwest 26.5Western 23.1 American 10.5 America West 23.1

    Total 46.7 Total 44.2 Total 49.6

    Memphis Delta 42.2 Northwest 83.5 Northwest 76.3

    Southern 24.0 Delta 8.1 Delta 11.8Total 66.2 Total 91.6 Total 88.1

    Minneapolis Northwest 31.7 Northwest 77.4 Northwest 80.6N. Central 21.4 United 5.2 United 4.0

    Total 53.1 Total 82.6 Total 84.6

    Nashville American 28.5 American 62.7 American 69.8Eastern 19.8 Delta 8.0 Delta 8.1

    Total 48.3 Total 70.7 Total 77.9

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    carriers CRSs to display their flights. This placessmaller airlines at a tremendous disadvantagebecause they must pay to have their flight infor-mation included on the CRSs5 and because theyare usually given a less favorable display. Theresult is that a CRS-owning airline has a 1318

    percent greater chance of selling its flights whenits CRS is used by a travel agent (U.S. GAO1986). Additionally, large CRS-owning airlinesprovide financial incentives (commission over-rides) to travel agents who book more passengerson their flights. Larger airlines thus attempt tocontrol both the travel agencies and the marketsthey serve by encouraging the use of their CRSs.It is no surprise, therefore, that travel-agent utili-

    zation of certain CRSs has become concentratedinhubcitiesaswell (Williams1993).Forexample,American Airlines Sabre CRS handled morethan 87 percent of travel-agency revenues inDallas (U.S. DOT 1990), while Uniteds ApolloCRS handled more than two-thirds of these in

    Denver in the late 1980s.Industrial consolidation through mergers, ac-

    quisitions, and bankruptcies further facilitatedsingle-carrier concentration in hub cores. Theacquisition of Republic by Northwest in 1986increased concentration levels in Minneapo-lis/St. Paul and Detroit, while the TWA-Ozarkmerger in 1986 did the same for St. Louis (U.S.GAO 1988). Similarly, Easterns bankruptcy and

    Table 3. Market Concentration at Domestic Hub Cores (continued)

    City 1978 1988 1993Airline % Airline % Airline %

    Newark Eastern 30.2 Continental 43.9 Continental 53.0American 11.1 United 11.3 United 11.0

    Total 41.3 Total 55.2 Total 64.0

    Philadelphia Allegheny 22.4 USAir 36.8 USAir 60.0Eastern 21.4 Eastern 17.0 American 10.8

    Total 43.8 Total 53.8 Total 70.8

    Phoenix American 27.1 America West 44.2 America West 39.4Hughes AW 20.4 Southwest 19.1 Southwest 30.7

    Total 47.5 Total 63.3 Total 70.1

    Pittsburgh Allegheny 46.7 USAir 85.4 USAir 88.9United 20.5 American 2.7 Delta 2.7

    Total 67.2 Total 88.1 Total 91.6

    Raleigh-Durham Eastern 74.2 American 68.6 American 80.4Piedmont 8.2 Piedmont 12.0 USAir 8.2

    Total 82.6 Total 80.6 Total 88.6

    St. Louis TWA 39.4 TWA 82.2 TWA 60.4Ozark 20.6 Southwest 3.5 Southwest 13.6

    Total 60.0 Total 85.7 Total 74.0

    Salt Lake City Western 39.6 Delta 80.2 Delta 71.4United 21.9 United 5.8 Morris 14.6

    Total 61.5 Total 86.0 Total 86.0

    Washington Eastern 24.3 United 23.0 United 29.8United 14.6 Eastern 14.4 USAir 19.0

    Total 38.9 Total 37.4 Total 48.8

    Domestic hub 1st carrier 37.2 1st carrier 58.8 1st carrier 62.5cores average 2nd carrier 20.7 2nd carrier 14.2 2nd carrier 13.9

    Total 57.9 Total 73.0 Total 76.4

    aBoldface shows higher concentration.

    Source: FAA 1978, 1988, 1993.

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    subsequent dissolution increased Deltas marketshare in Atlanta from 58 percent to 83 percent.

    That said, airline market shares were not asconcentrated inothercore airports (Figure1).Allof the international gateway cores and ten of the

    22 hub cores (several of which also function asgateways) were not concentrated as of 1993.Large local demand, multiple airports, resortfunctions (LasVegas and Phoenix), and relativelyrecent hub designation (Cleveland) explain whymarket concentration was not uniform across allhub and gateway cities. Keen competition in thesemi-core has also limited airline control; con-centration prevailed in only one (El Paso) of 22semi-core cities (Figure 2).

    Turning to the periphery, levels of concentra-tion tend to rise again as centers become smaller(Figure 3). Cities in the semi-periphery have rea-

    sonably good linkages to the core because theyare important spokes providing traffic for themajor hubs. Each of the nationwide carriers hasexpanded their systems to include most of thesecities. Nevertheless, 13 of 61 semi-peripheral cit-ies, mostly in the southeastern U.S. and Texas,

    were concentrated in 1993 (Figure 4). In the farperiphery, meanwhile, nearly 80 percent of citieswere concentrated (Figure 5). Most of thesemar-kets are very small and generally cannot sustainmore than one or two airlines. Prior to 1978,

    airlines provided regulated small communityservice as part of their common-carrier obliga-tion. Under deregulation, airlines have been al-lowed to exit smaller markets, leaving thesecommunities to rely upon commuter operators orto lose service altogether. The major carriers didbring the larger peripheral centers into their do-mains as a resultof code-sharing6 and intercarrieragreements with commuter airlines (Oster andPickrell 1986). Indeed, the majors owned, con-trolled, and financed (in part or in full) virtuallyall the top 50 commuter carriers (Beyer 1987).Small communities relying heavily upon com-

    muter carriers for their service are often captivesof the majors themselves.

    Employment Impacts. As fewer airlinesaccount for a larger share of the market, nodesof corporate control and decisionmaking have


    Hub GatewayConcentratedNot Concentrated












    Los AngelesPhoenix

    San FranciscoSaltLake City Chicago Cleveland

    Las Vegas Raleigh/Durham

    New York



    Minneapolis/St. Paul

    Figure 1. Passenger-airline core market concentration for domestic hub and international gateway centers. Aconcentrated market is one in which one airline enplaned at least 60 percent of passengers or two airlines enplanedat least 85 percent (U.S. GAO 1990a). Source: U.S. FAA 1993.

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    ConcentratedNot Concentrated

    S a n J o s e


    F or t M yer s W . P al m B each




    OrlandoTampa/St. PetersburgS an A nt oni o


    E l P asoTucson

    S an D i egoOntario/Riverside



    Oklahoma CityTulsa




    K ansasC i t y


    N ew O r leans

    Figure 2. Passenger-airline market concentration for semi-core cities. Source: U.S. FAA 1993.

    Figure 3. Average levels of market concentration in places across core-periphery categories.

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    ConcentratedNot Concentrated





    Atlantic City






    AllentownFt. Wayne


    MelbourneDaytona Beach









    White Plains Islip/Long IslandIslip/LongIslandNewburghSyracuse






    Pensacola Tallahassee

    Little Rock



    Baton Rouge







    Des Moines


    Colorado SpringsFresno

    Indio/Palm Springs





    Figure 4. Passenger-airline market concentration for semi-periphery cities. Source: U.S. FAA 1993.


    ConcentratedNot Concentrated

    Figure 5. Passenger-airline market concentration for far periphery cities. Source: U.S. FAA 1993.

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    assumed more importance in places like Dallas(American), Chicago (United), and Atlanta(Delta). These places, linked as they are to thehealthiest airlines, would be expected to benefit,while places linked to declining or defunct air-

    lines would be expected to suffer. One way togauge these impacts is to monitor airline employ-ment across communities. Table 4, based onCounty Business Patterns (U.S. Bureau of theCen-sus 1978, 1992) listings of employment in SICcategory 45 (air transportation), summarizes thechanges in airline and airport employment foreach of our core-periphery categories.

    Across all categories, employment in airlineservices in both commercial air passenger andfreight (air cargo) transportation grew from365,468 in 1978 to 642,249 in 1992. More than55 percent of this increase occurred in hub core

    cities, especially Dallas, Chicago, Minneapolis,Pittsburgh, and Phoenix (Figure 6). In hub cities,airline-based employment increased from 36.2percent of the national total in 1978 to 45.1percent in 1992. Gateways experienced muchslower growth, their share of total employmentdropping from 39.2 percent to 24.4 percent. Mi-ami, in particular, lostmore than 12,000 air-trans-portation jobs over this period, much of itoccurring between 1985 and 1990 with the de-cline of Eastern and Pan Am Airlines. Atlantaalso lost more than 10,000 employees in that sameperiod, and Kansas City fell from the ranks ofdomestic hubs. The semi-periphery and far pe-

    riphery each increased their share of total em-ployment by several percentage points.

    The impact of a healthy or ailing airline onmetropolitan employment can be substantial. Asan example, airline services in Fulton County(Atlanta) directly accounted for 6.4 percent oftotal employment and 10.7 percent of total pay-

    roll in 1985 (U.S. Bureau of the Census 1985);indirect employment is even greater. The sub-sequent decline of Eastern and related job lossesafter 1985 thus had a chilling effect on Atlantaseconomy, although Deltas expanded hub opera-

    tions mitigated these lossessomewhat.As airlinesgo out of business or adopt alternative operatingstrategies in response to changing economic con-ditions, the geographic effects on employmentand economic bases are markedly uneven. Casesin point arethe recentcutbacks in huboperationsby the majors, e.g., USAir dropping its Daytonhub, American pulling out of San Jose, and Con-tinentals decision early in 1994 to reorient muchof its aircraft fleet and personnel away from itshuboperations in Denver(whereit was losingoutto United). Continentals downsizing in Denverresulted in the layoff of several thousand airline

    employees in 1994 alone, but this decision alsoenabled United to increase its market share inDenver from approximately 50 percent in 1993to more than 70 percent by 1995 with marginalincreases in employment there (Lieb 1995;Dempsey, Goetz, and Szyliowicz 1997).

    Geographic Changes in Service: DepartureFrequencies andPassenger Flows

    Most communities regard increases in flightdepartures, quality of service, and passenger flow

    as beneficial for economic vitality. Frequent andreliable air service is often cited as a principalfactor in the locational decisions of firms, includ-ing many high-technology and Fortune 500 cor-porations (Joyce 1985; Markusen et al. 1986).Several studies have identified direct linkagesbetween a citys air passenger service and its

    Table 4. Concentration in Air Transportation Employment across Core-Periphery Categories

    Category Employees Share of Total (Percent)1978 1992 1978 1992

    Domestic hub core (22 cities) 132,414 289,511 36.2 45.1International gateway core (6 citites) 143,407 156,407 39.2 24.4Semi-core (25 cities) 34,408 59,029 9.4 9.2Semi-periphery (61 cities) 15,625 51,990 4.3 8.1Far periphery (all othersa) 39,614 85,312 10.8 13.3

    National total 365,468 642,249aIncludes all other U.S. counties excluding Alaska and Hawaii that registered employment in air passenger, air freight, or airport


    Sources: U.S. Bureau of the Census 1978, 1992.

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    population and employment growth (Irwin andKasarda 1991; Goetz 1992; OConnor and Scott1992; Ivy et al. 1995), provided of course that

    diseconomies of scale such as airport capacityconstraints (which increase congestion and de-lays)or environmental impacts (e.g., increased airand noise pollution) do not occur.

    Before 1978, theCivil Aeronautics Board con-trolled airline service through theissue of certifi-cates of public convenience and necessity toairlines for every route that they served. Thispractice resulted in a predominantly linear routestructure whereby certain carriers became associ-ated with particular markets and regions. Al-thoughthe growthand developmentof theairlineindustry resulted in a more complex service pat-tern in 1978 than in 1938, the carriers regional

    orientations persisted (Fleming 1991).With deregulation, airlines were allowed to

    serve or withdraw from any domestic route. Withthis newly found freedom, most carriers adoptedhub-and-spoke route structures to accommodatelarger volumes of traffic from an increasednumber of city-pairs. Airlines developed hub fa-cilities at strategic points in their air-service net-works, and hub cities rapidly expanded flight

    departures and enplaned passenger traffic (Table5). Between 1978 and 1993, hub cities increasedflight departures by 75.6 percent and more than

    doubled the number of enplaned passengers. In-ternational gateway, semi-core, and semi-periph-ery centers also registered gains, though not tothesame degreeas thedomestic hubs. Far periph-ery cities meanwhile experienced a 15.4 percentdecline in certificated airline flight departuresand a relatively modest increase (11.8 percent) inenplaned passengers.

    Concurrently, service frequencies and en-planed passengers concentrated in the core. Theshare of flight departures from hubs increasedfrom 41.8 percent to 48.9 percent of the nationaltotal between 1978 and 1993; and passenger en-planements increased from 46.9 percent to 52.7

    percent. Absolute increases in departures andenplaned passengers were highest in Dallas, Chi-cago, Los Angeles, San Francisco, Phoenix, andHouston. Core centers overall experienced sub-stantial increases, save for New Yorks Kennedyand La Guardia Airports where departures de-creased by nearly 19,000 flights. Doubtless thedifficulties of Pan Am and Easternhad a negativeeffect on New Yorks central airports,but theNew

    Figure 6. Air-transportation employment (Standard Industrial Classification category 45) for domestic hub andinternational gateway core centers in 1978 and 1992. Sources: U.S. Bureau of the Census 1978, 1992.

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    York metropolitan area was buoyed by thegrowthof the Newark, Islip-Long Island, White Plains,

    and Newburgh airports.Peripheral centers did not fare as well. Many

    jet-service carriers withdrew from these marketsand were replaced by smaller turbo-prop carriers.Although flight frequencies have increased atsome of the largest of these communities, seatingcapacities and service quality have declined as aresult of these changes (Ahmed 1984; Molloy1985; Brenner 1988). Furthermore, small com-munitiesoverall haveexperienced frequent inter-ruptions in service and many have been droppedfrom the air-service network altogether (Kihl1988). Of the514 nonhubcommunities receiving

    air service in 1978, 167 were terminated by 1995,while only 26 gained a new service (Dempsey andGoetz 1992; Official Airline Guide 1995). Termi-nations were most numerous in the Far West,especially Oregon, Nevada, and California, butwere also widespread throughout theEast (Figure7). These trends underline one of the concernsexpressed during the deregulation debatetheissue of small community service (Havens andHeymsfeld 1981; Meyer et al. 1981). Fearing thatcarriers would exit smaller markets once theywere relieved of their common-carrier obligationto provide service, the Airline Deregulation Actincluded provisions for Essential Air Service

    (EAS) subsidiesto encourage carriers to continueserving small communities. In 1995, 77 commu-nities received subsidized service (Subsidized Es-sential Air . . . 1995).

    The geographic pattern of service changessince deregulation (to 1993) is evident in the top114 air passenger cities (Figure 8). Core citiesenjoyed the largest absolute increases in flightdepartures in the West (Los Angeles, San Fran-

    cisco, Phoenix, Seattle, Salt Lake City), Texas(Dallas, Houston), the mid-South (Charlotte),

    the Midwest (Chicago, St. Louis, Minneapolis,Detroit), and the Eastern Seaboard (Newark,Boston). New York, Buffalo, New Orleans, andKansas City experienced absolute decreases in de-partures, as did more peripheral cities in the Mid-west (Sioux Falls, South Dakota; Omaha,Nebraska; Wichita,Kansas;DesMoines, Iowa)andthe South (Chattanooga, Tennessee; Jackson, Mis-sissippi; Birmingham,Alabama;Mobile,Alabama).

    These changes are attributable in part to gen-eral population and economic trends, but theyalso reflect the importance of airline hubs andinternational gateways as well as the accompany-

    ing peripheralization of other cities. For exam-ple, Kansas City has experienced erratic levels ofservice in the era of deregulation. Initially a hubfor TWA, Kansas City lost these hub operationsto St. Louis; later, it served as a hub for Easternwhich subsequently went out of business (deNeufville and Barber 1991). Instability in servicehas become a fact of life under deregulation.

    Geographic Changes in Pricing

    Whileregulated, air-passenger fare pricing wastied directly to costs (especially those related to

    distance) and to earnings levels that ensuredcarrier solvency.After deregulation, carrierswerefree to set fares at whatever level the marketwould bear. According to the U.S. Department ofTransportation (1990), the U.S. GAO (1990a,1990b, 1993), and the National Research Coun-cil (1991), average fares have decreased sincederegulation; these studies failed to emphasize,however, the striking spatial variations in fares.

    Table 5. Increasing Hub Core Dominance in Flights and EnplanedPassengers across Core-Periphery Categories

    Percent PercentCategory Flights of Total Enplaned Passengers of Total

    1978 1993 1978 1993 1978 1993 1978 1993

    Hub cores (22 1,914,239 3,360,779 41.8 48.9 120,036,741 252,112,742 46.9 52.7centers)

    Gateway cores (6) 795,002 1,151,800 17.4 16.8 59,752,903 95,769,393 23.3 20.0Semi-core (25) 678,854 1,078,256 14.8 15.7 34,923,473 74,271,442 13.6 15.5Semi-periphery (61) 588,078 769,379 12.8 11.2 24,497,081 37,471,021 9.6 7.8Periphery (384) 602,785 511,515 13.2 7.4 16,974,191 18,792,273 6.6 3.9

    Total 4,579,158 6,871,729 256,184,389 478,416,871

    Sources: U.S. FAA 1978, 1993; U.S. DOT 1978, 1993.

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    1978 - 19841984 - 19871987 - 1995

    Period when service ended


    Figure 7. Passenger-airline service terminations from 19781995. Sources: U.S. CAB 1984; Official Airline Guide1987, 1995.


    Increase Decrease5,000- 9,99950,000- 99,99930,000 - 49,99910,000 - 29,9990 - 4,999

    100,000 - 224,999> 225,000

    Number of Flight Departures

    Figure 8. Absolute changes in flight departures from 19781993 for the 114 largest air-passenger cities. Sources:U.S. FAA 1978, 1993.

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    The uneven spatial pattern of airline pricing isrevealed by calculating average fares in 1979 and1993 for the top 114 air passenger cities in theU.S. and mapping them as fare contours using akriging algorithm7 (Figures 9 and 10). In 1979,

    average fares were much higher in the southwest-ern U.S. (especially for Colorado Springs, Colo-rado; El Paso, Texas; Albuquerque, New Mexico;and Tucson, Arizona) and tapered off toward theeast and intermontane west (especially Nevada).By 1993, the situation was completely reversed.The lowest fares were in the southwest, while thehighest fares were centered in the southeasternU.S., particularly in Huntsville and Mobile, Ala-bama; Jackson, Mississippi; Greenville and Co-lumbia , South Carol ina; Memphis andChattanooga, Tennessee; and Raleigh-Durhamand Charlotte, North Carolina. More important,

    the fact that these cities experienced absoluteincreases in real fares (measured in 1993 dollars)confirms that deregulation has not reduced faresacross all locations.

    This regional inversion in fares can be ex-plained by varying levels of competitionand con-centration at airports throughout the country.The GAO (1990b) attributed decreased fares inthesouthwesternU.S. to thepresence of low-cost

    carriers Southwest Airlines and America Westwhich vigorously competed against the majors.Increased fares in the southeast were explainedby the agglomeration of hub airports in the mid-South (e.g., Atlanta, Charlotte, Memphis, Nash-

    ville, and Raleigh-Durham) and the increasedreliance of smaller hinterland cities upon theseconcentrated hubs (Goetz 1993). Equally note-worthy is Delta Airlines strong presence in manyof the high-fare southeastern markets. Corporatedominance as manifested in geographic locationis partly responsible for these regional changes inair fares.

    Recent research has documented an associa-tion between high fares or yields8 (fares per pas-senger-mile) and hub dominance by one or twofirms, i.e., one carrier accounting for 60 percentor more of the market or two carriers controlling

    more than 85 percent (U.S. GAO 1990a, 1993).It has also been reported that an increase in a hubsairline-enplanement share of 10 percent results ina 4.3 percent increase in average fares at that hub(Borenstein 1989). Table 6 reports changes in av-erage air fares and yields between 1979 and 1993for both concentrated and unconcentrated hubcores, as well as for the other core-peripherycategories. Passengers in the unconcentrated hub

    Figure 9. Contour map of average one-way fares in 1979 for the 114 largest air-passenger cities. Source: U.S. DOT1990.

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    core cities have received lower fares, while thosein hub cities dominated by one or two airlineshave not. Faresalso fell substantiallyin thelargelyunconcentrated gateway core and semi-core andless substantially in the relatively more concen-trated semi-periphery and far periphery. Figure11, illustrating average yield levels across core-periphery categories, displays a striking similarityto the levels of market concentration depicted in

    Figure 3. Yields and market concentration arelowest for the gateways and semi-core, and riseon either end of the systems spectrum, i.e., to-ward the hub cores and toward the far periphery.

    Turning to regional patterns by core-peripherycategory, average one-way fares among core cen-ters are highest in the concentrated hubs in themid-South and Midwest, especially Cincinnati($195.59), Memphis ($188.81), Raleigh-Durham

    Table 6. Changes in Air Fares and Yields for Core -Periphery Categories

    Average YieldsAverage One-Way Fares (Dollars) (Cents per Passenger Mile)

    1979a 1993 Percent 1979a 1993 PercentAverage Stand. Change Average Stand. Change

    Dev. Dev.

    Hub core (22 centers) 181.64 163.81 26.08 -9.8 23.76 17.85 3.80 -24.9Concentrated (12) 173.14 174.63 29.55 +0.9 24.84 19.79 3.41 -20.3Unconcentrated (10) 191.84 150.83 18.94 -21.4 22.47 15.52 3.26 -30.9

    Gateway cores (6) 211.13 161.54 10.36 -23.5 19.47 12.42 1.78 -36.2Semi-core (25) 202.27 137.59 20.69 -32.0 24.11 13.90 1.94 -42.3Semi-periphery (61) 179.90 166.47 30.40 -7.5 25.70 16.94 2.77 -34.1Far periphery (320) 192.14 182.39 39.44 -5.1 27.90 21.28 8.75 -23.7aAdjusted to 1993 dollars according to the Consumer Price Index.

    Sources: U.S. DOT 1990; U.S. GAO 1990a, 1990b, 1993; Back Associates 1993.

    Figure 10. Contour map of average one-way fares in 1993 for the 114 largest air-passenger cities. Source: BackAssociates 1993.


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    ($187.45), Charlotte ($186.77), and Minneapo-lis/St. Paul ($184.81) (Figure 12). Fares are muchlower in the unconcentrated hubs such as resort

    centers Las Vegas ($98.12) and Phoenix($111.10). Semi-core centers (e.g., Reno at$95.21 and Ontario/San Bernardino at $113.18)also had lower fares, though Hartford ($186.41)was an exception (Figure 13). The semi-periph-ery, meanwhile, had higher average fares espe-cially in southeastern and northeastern citiesincluding Huntsville, Alabama ($229.36), WhitePlains, New York ($213.65), Mobile, Ala-bama/Pascagoula, Mississippi ($204.17), and Al-lentown/Bethlehem/Easton, Pennsylvania($201.42) (Figure 14). Meanwhile, several Texascities served largely by Southwest Airlines, suchas Lubbock ($86.17), Midland/Odessa ($86.65),

    Brownsville/Harlingen/San Benito ($92.30) andAmarillo/Borger ($96.83), had quite low fares.Far periphery centers had the highest averagefares and yields of any core-periphery categoryand also the greatest range. Of 320 far-peripherycenters reporting fares and yields,83 had averageone-way fares in excess of $200 (5 were greaterthan $300), and 61 had average yields in excessof 25.00 cents per passenger-mile.

    One of the major concerns about deregula-tionwhethercarrierswould beable to carveoutgeographic monopolies and chargehigher fares in

    those marketsmay be well-founded. If deregu-lation has reduced average fares overall, fares inconcentrated domestic hub markets and in manysmall communities have increased. Monopolyrevenues appear to be subsidizing discount faresin more competitive markets. A recent examplecomes from Denver, whereaverage fares betweenJune 1994 and June 1995 increased by 46 percentfollowing Continentals hub dismantlement andthe ensuing market dominance established byUnited which led to the latters best financialperformance in Denver in many years (Leib1995). Overall, it seems that concentrated do-mestic hubs have benefited from increased airline

    employment, flight departures, and passengerflow, but not from lower air fares.

    As for the far periphery, average fares tend tobe higher than those in other centers. Thesefindings are corroborated by the U.S. GAO(1991), which found that passengers in smallcommunities9 paid 3 percent more than passen-gers flying from major airports and 6 percentmore at concentrated small-city airports than at

    Figure 11. Average yields (fares per passenger-mile) in places across core-periphery categories. Source: Table 6.

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    DollarsHubs Gateways> 225.00

    75.00- 99.99100.00- 124.99125.00 - 149.99150.00- 174.99175.00 - 199.99200.00 - 224.99

    Concentrated Not Concentrated








    Salt Lake CityNew York



    Pittsburgh Philadelphia


    Minneapolis/St. Paul







    Los Angeles

    San Francisco

    Las Vegas


    Figure 12. Average air fares for concentrated and unconcentrated domestic hub core centers and internationalgateway core centers. Sources: Back Associates 1993: figure 1.


    San Jose


    Fort Myers W.Palm Beach




    OrlandoTampa/St. Petersburg


    El PasoTucson






    San DiegoOntario/Riverside

    San Antonio

    Oklahoma City

    Kansas CityIndianapolis Columbus


    Not Concentrated75.00 - 99.99100.00 - 124.99125.00 - 149.99150.00 - 174.99175.00 - 199.99200.00 - 224.99> 225.00



    Figure 13. Average air fares for concentratedand unconcentrated semi-corecities. Sources: Back Associates 1993:figure 2.

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    unconcentrated small-city airports. The moststartling finding, however, was that passengersflying from small-city airports to major airportspaid 34 percent more if the major airport wasconcentrated and 42 percent more if both the

    small-city and the major airport were concen-trated. Small cities relying upon concentratedhubs for their service are at a clear disadvantage.

    These results suggest that pure market size hasless to do with changes in air fares than do levelsof concentration at major airports or geographiclocation tied to specific airlines. Thus a largecity/small city taxonomy misses thekey elements,namely, corporate control, market concentration,and regional location. These elements are betteraddressed through a core-periphery approachthat can explicitly incorporate such dynamics.

    Airline Deregulation: MarketPower and Spatial Concentration

    Deregulation in the U.S. airline industry hasmeant that fewer and larger airlines now controlthe domestic air passenger market predominantlythrough their hub-and-spoke service networksand extensive computer reservations systems. In-

    dustry concentration via mergers, acquisitions,and bankruptcies and the shift to hub-based op-erations have resulted in the spatial concentra-tion of airline activity evident in the emergenceand dominance of core control centers within a

    core-periphery structuring of the U.S. air trans-portation system.

    Core cities, represented by the major airlinecorporate headquarters, domestic hub centers,and international gateways, exhibit sharp con-trasts to peripheral spoke cities with respect toindustry structure, service, and pricing. The corecities, particularly the domestic hubs, have en-joyed a disproportionate share of the increases inairline employment, service frequencies, and pas-senger traffic. Where market concentration islow, consumers have enjoyed lower fares; butwhere markets have become more concentrated,

    fares have risen. Fares have also risen in theperipheral service hinterlands of concentratedhub centers. Conversely, in places with morecompetition(e.g., gateways and semi-core cities),fares have declined considerably. Cases in pointare the low-fare cities in the more competitivesouthwestern U.S. as contrasted with the high-fare cities located in the more concentratedsoutheast.


    Not Concentrated75.00- 99.99100.00 - 124.99125.00 - 149.99150.00 - 174.99175.00 - 199.99200.00 - 224.99> 225.00



    Figure 14. Average air fares for concentrated and unconcentrated semi-periphery cities. Sources: Back Associates1993: figure 3.

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    Cities benefiting most from deregulation aretypified by the presence of domestic and/or inter-national operationsof several carriers,nonebeingable to dominate passenger traffic. Cities such asDallas, Chicago, Phoenix, Houston, and Los An-

    geles have experienced the highest increases inairline employment, service frequencies, and pas-senger traffic, plus lower fares. In each of thesecases, themarketconsists of threeormore airlinesthat are strongly competitive.

    Cities benefiting least from deregulation are oftwo sorts: (1) peripheral places that have beendropped altogether from the air-service networkand (2) semi-periphery and far periphery citiesthat have received reduced service and higherfares. Examples of the former include Corvallis,Oregon; Carson City, Nevada; Clarksville, Ten-nessee; and Montpelier, Vermont. Examples of

    the latter include several cities in the southeastsuch as Mobile, Alabama; Chattanooga andKnoxville, Tennessee; and Jackson, Mississippi.The majority of peripheral cities that are still inservice haveexperienced somebenefits, but theseare uneven in space and less substantial than forcore centers.

    These results provide compelling evidence ofcore-periphery dynamics. First, the core hasbenefitedmore than theperiphery. Theperipheryhas been at least relatively disadvantaged, and, insome instances (service declines and termina-tions), absolutely. Even though the semi- andfar-periphery groups reaped some benefits, e.g.,

    increased employment and lower fares overall,many peripheral places (especially in the south-east) have not fared well under deregulation.Second, dependency on the core has increased.Service linkages to the far periphery are providedby commuter airlines owned or controlled by themajors and routed through the core hubs. Faresat peripheral centers are increasingly dependentupon levels of concentration at the nearby hub.Core centers have become more important to themajor airlines as airlines increase their controlover the system through the core.

    The only major deviation from core-periphery

    expectations is the association of market concen-tration and higher fares and yields at many of thedomestic hub core centers. On these measures,the gateway core, semi-core, and semi-peripheryreport lower fares and yields than do the hub coreor the far periphery. In fact, as Figures 3 and 11illustrate, similar bar graph patterns apply acrossall five of the core-periphery categories. An air-lines level of market control thus is a two-edged

    sword. One edge increases airline employmentand expands departure frequencies to more des-tinations. Theother edge increases thedominantairlinespower to chargehigher fares and to effectgreater dependency on that airlines service.

    While smaller markets are more prone to airlinedomination, larger markets are not immune.Concentration in hub cities such as Charlotte,Cincinnati, Raleigh-Durham, Atlanta,Memphis,and Minneapolis can be traced to: (1) an explicitcompetitive strategy of hub domination exercisedby the major airlines; (2) a hubs role as a strategicnode in carriers networks; (3) a somewhatsmaller market that made capture possible; (4)carrier acquisition of airport gates and terminalspace through merger, bankruptcy, or by outrightlease purchase making it easier to control anairport; and (5) economies of scale, scope, and

    density for the larger airlines and barriers to entryfor smaller airlines. To this we should add that thesystem as a whole is dynamic. Core designationscanchangedepending upon airline strategies andsurvival; some previously peripheral cities havetaken on core functions (e.g., Charlotte, Nash-ville, Raleigh-Durham), while some core centershave become peripheralized (e.g., Kansas City,Dayton, San Jose).

    The spatial impacts of airline deregulation areconsistent with those found for other industries.As key control centers become dominant, serviceimproves in larger markets and fares rise in moreconcentrated ones (Lord 1992; Love et al. 1992;

    Graham 1993). In sum, deregulation has sharp-ened spatial contrastsviadifferential marketcon-centration in core centers. The U.S. experiencewith airline deregulation thus sends mixed mes-sages to policymakers. To the extent that deregu-lation has increased airline employment,frequency of service, and passenger traffic, andlowered fares (on average), it may be judgedsuccessful. But as we have seen, market concen-tration has blunted these gains. That said, ulti-mate judgments on airline deregulation willdepend on two caveats. First, the post-1978trends may owe less to deregulation than to an

    extension of positive long-term trends in employ-ment, service, and fares begun before 1978. Sec-ond, recent financial experiences may be movingthe industry in the opposite direction. Between1990 and 1993, for example, U.S. airlines re-ported their worst financial performance withtotal losses amounting to nearly $13 billion.Though 1994 and 1995 were better years, theindustry is still weak. Moreover, the recent startup

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    of several small newcarriers notwithstanding, theindustry in 1995 is as concentrated as ever. Con-centration has meant that one or two airlinesexercise control over increasing numbers of largeand small cities where average fares tend to be

    higher and vulnerability to airline decisions andmarket vagaries are greater. It is incumbent upongovernment policymakers to recognize these tell-ing spatial trends as well as aggregate ones and toforestall the negative effects of financial distressand market dominance by promoting sustainable,long-term competition which benefits industry,consumers, and the air-passenger transportationsystem.


    Thanks to Paul Marr of the Department of Geogra-phy at the University of Denver for producing the farecontour maps and to the cartographers in the Depart-mentof Geography atMonash Universityfor producingearly drafts of the maps. We acknowledge the anony-mous Annals reviewers for their efforts in providingusefulcommentary.Special thanksgo toKevin OCon-norof MonashUniversity forcommentson theoriginalmanuscript and for his much-appreciated support dur-ing Goetzs sabbatical leave in Australia.


    1. Other companies using the names Midway andPan Am have since started operations.2. These are not absolute delimitations; there is

    some functional overlap. For instance, Chicago isa major domestic hub and an important interna-tional gateway.Several metropolitan areasNewYork, Los Angeles, Chicago, Houston, Washing-ton, San Francisco, and Dallashave more thanonemajor commercialairport,thus categorizationof thesecities is problematic.Thisanalysis accordsdesignation priority to domestic hub status forthose cities that perform that function.

    3. The Federal Aviation Administration (FAA)has the following size classification scheme: alarge hub is a city and its metropolitan area that

    enplanes more than 1 percent of thetotalnumberof U.S. domestic airline passengers per year; amedium hub enplanes between 0.250.999 per-cent, a small hub enplanes between 0.050.249percent, and a nonhub enplanes less than 0.05percent. In this study, only metropolitan areasfrom the 48 contiguous states are included. TheFAAs Airport Activity Statistics also lists manycommunities receiving air service in Alaska, Ha-waii,and U.S. territories, but sincetheserepresent

    different circumstances, they are not included inthis study.

    4. The U.S. General Accounting Office (1990a;1993) defined a concentrated market as one inwhich one airline handled at least 60 percent of

    the enplaning passengers or two airlines handledat least 85 percent. This definition of concentra-tion is used throughout this study.

    5. Computer reservations systems (CRSs) are pro-lific income-generators on their own. CRS-own-ing airlines benefit greatly from CRS-generatedrevenues.

    6. Code-sharing is a practice whereby one airlinesflights canbe co-listed under another airlinescode.For example, Mesa Airlines has a code-sharingagreement with United Airlines, hence many Mesaflights are listed as United flights. Scheduling andbaggage handling is coordinated so that passengersperceive a seamless single-carrier operation.

    7. Figures9 and 10 were created by using the spheri-

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    8. Yields (fares per passenger-mile) are often used asa supplementalmeasure to actual fares in order tocontrol for intercity differences in average tripdistances flown.Since some citiesare farther frommajor centers, fares will be higher simply becauseof the greater distances traveled. Likewise, manysmaller cities have shorter trip distances that re-sult in lower fares but notnecessarily lower yields.

    9. The U.S. GAO (1990b) defined small communi-ties as those with a metropolitan statistical area

    (MSA) population of 300,000 or less, medium-sized communities as those with an MSA popula-tion of 300,001600,000, and large communitiesas those with an MSA population of 1.5 millionor more.


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