Impact of high-speed rail on China’s Big Three airlines

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Impact of high-speed rail on China’s Big Three airlines

Zhang, Qiong / Yang, Hangjun / Wang, Qiang

AbstractThe Chinese airline industry has grown rapidly in the last 30years, with China’s air travel market becoming the second largest in the world since 2005. However, the fast development of China’s high-speed rail (HSR) is challenging the airline industry’s growth. Using quarterly route level panel data of air passenger demand from 2010 to 2013, this paper analyzes the effects of HSR on China’s Big Three airlines. We find that the entry of HSR has a strong negative impact on the air transport demand, and the air demand becomes much more elastic after the introduction of parallel HSR service. Moreover, we find that while the impact of HSR on airlines is severe in thin markets, it is insignificant in thick markets. We also find that the price difference between airfare and HSR fare plays an important role when passengers choose between HSR and air transport. In terms of service levels, HSR travel time has much stronger effect on the air transport demand than HSR service frequency.