Competition of airline and high-speed rail in terms of price and frequency: Empirical study from China

High-speed rail (HSR) is developing at an unprecedented speed in China, however its impact on the air market is under-investigated. In order to fully assess strategic response behaviour, two aspects of competition should be considered: fares and frequency. We present the first ex-post analysis of HSR's influence on both air pricing and frequencies in China using a panel dataset of 30 different routes. In modelling frequency we use a novel application of Instrumental Variables to address the potential bias arising from the co-dependency between modal frequencies. Our results indicate that the presence of inter-modal competition can induce air to reduce fares and frequencies greatly: air fares are 0.397 CNY/km (34%) lower and air frequencies are 60.2% less on the routes with HSR. Where competition from HSR exists, air fares and frequencies are found to be higher on the routes with lower HSR frequencies and lower air travel times relative to those of HSR. We find that the inter-temporal price discrimination (IPD) of air fares can also be influenced by HSR competition: the J-curve of air prices reaches a minimum value earlier, ie more days ahead of departure, on the routes with HSR services. Air fares' variation by distance is also influenced by HSR competition: fares per kilometre reach their minimum at longer distances (around 1500 km) on the routes with HSR services