PROCEEDINGS of the 40Th ANNUAL MEETING
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PROCEEDINGS OF THE40 Th ANNUAL MEETING OF ME TRANSPORTATION RESEARCH FORUM Philadelphia, Pennsylvania October 29-31, 1998 Volume 1 AsS 2,1 Welcome to the Transportation Research Forum's 1998 Annual Meeting These proceedings contain those papers presented at the 40th Annual Meeting of the Transportation Research Forum, held in Philadelphia from October 29-31, 1998, that were received by the deadline publishing date. All papers were reviewed by the Program Vice President to assess their suitability for inclusion in these volumes. Additional papers may be made available by some of the presenters at the time of the Conference. The Transportation Research Forum (TRF) is an independent organization of transportation professionals providing pertinent and timely information to those who conduct research and those who use and benefit from research. It functions as an impartial meeting ground for carriers, shippers, government officials, consultants, university researchers, suppliers, and others seeking an exchange of information and ideas related to both passenger and freight transportation. The Transportation Research Forum started with a small group of transportation researchers in New York in 1958 and the first national meeting was held in St. Louis in 1960. National meetings have been held annually since 1960 at various cities throughout the U.S. and Canada. Numerous TRF members and supporters aided in the development of this year's Forum, but it is authors of the papers, the organizers and contributors to the various panels, and the session chairs who make TRF annual meetings so worthwhile and enjoyable. The conference program simply reflects the interests, enthusiasm and commitment of those members of the transportation community. Special thanks go to Patrick and Judy Little who graciously agreed to assemble this year's proceedings for me. Without their help, the job of Program Chair would have been much more of a burden. A number of other TRF members also assisted in the development of this meeting. Randy Resor and Jim Blaze were constant sources of ideas and encouragement. When help was asked for, they came through repeatedly. Other TRF members provided help with the program in their areas of interest. I want to thank Alan Bender, Michael Belzer, Ken Ericksen, Paul Gessner, Harold Kurzman, Scott Omstein, Clint Oster, and Peter Smith for their help. Claire LaVaye at the University of Texas assisted with promoting the meeting on TRF's website. Finally, Rick Guggolz provided valuable assistance on the businees arrangements for the conference. We are also grateful to those companies and organizations who have sponsored awards or made other contributions to the success of the Forum. These include: LTK Engineering, The Metropolitan Transit Association, and RailTex. Among our own members, we are especially indebted to the TRF Foundation, the Cost Analysis Chapter and the Aviation Chapter for their assistance and support. These proceedings are prepared and distributed at the TRF Annual Forum as a means of disseminating information and stimulating an exchange of ideas during the meeting. Every effort has been made to reproduce these papers accurately. TRF, however, assumes no responsibility for the content of the papers contained in these volumes. Richard Golaszewski Program Vice President October, 1998 3 Toward a Market-Oriented Air Transport System?: Recent Developments in Russian Civil Aviation Performance and Policy ABSTRACT • John S. Strong Professor of Finance and Economics School of Business Administration College of William and Mary Williamsburg, Virginia 23185 USA tel(1) 757-221-2864 fax (1) 757-221-2937 e-mail [email protected] After seven years of declining demand and deteriorating performance, the Russian civil aviation sector began what might be an incipient recovery in 1997. This paper describes the performance and emerging structure of Russian air transport through early 1998. It is .t )ased on primary data from Russian airlines, airports, and the government, as well as i nformation from multilateral institutions. The paper discusses on the following major topics: 1. Industry performance a. Demand trends: domestic, international; cargo b. Emerging airline industry structure c. Financial performance d. Airport operating and financial performance e. Air navigation activity levels 2. Industry Structure Issues and Problems a. Separation of airports and airlines b. Special aspects of the Moscow airport situation c. Incipient fare wars and potential predatory pricing d. Equipment issues e. Safety problems • 3. Public Policy Initiatives a. Reorganization of administrative and ministerial responsibilities b. The Federal Aviation Service of the Russian Federation(FAS) C. The new Russian Federation air code d. The 1997/1998 "Russian Federation Air Transport Restructuring and Reform" white paper from the FAS and the Ministry of Economy 665 4. Emerging Issues a. The 1998 FAS initiative concerning airline certification and licensing b. New government initiatives to restrict fare and route competition c. The current debate concerning international gateways d. The problems of nonscheduled (charter) air services e. Safety performance f. Needed air navigation investments g. Bringing Russian air transport into conformance with international(ICAO) and European civil air transport 666 Toward a Market-Oriented Air Transport System?: Recent Developments in Russian Civil Aviation Performance and Policy John S. Strong Professor of Finance and Economics School of Business Administration College of William and Mary Williamsburg, Virginia 23187 USA tel (1) 757.221.2864 fax (1) 757.221.2937 e-mail: [email protected] After seven years of declining demand and deteriorating performance, the Russian civil taviationheperfo ssectorrmarirc began what might be an incipient recovery in 1997. This paper describes and structure, and main policy issues as of early 1998. Due to emerging industry the lack of consistent data and the difficulty in securing public release of the Information that is available, this paper should not be viewed as a traditional academic analysis, but rather more of a clinical study. Back l'iussla is so vast that air transport, though much reduced since the 1980s, will continue to Play a major role in the economy. More than two-thirds of intercity passenger travel and a lia,!t rial Part of cargo transport is done by air. In a number of Russian regions, especially and the providing access to the Other epria Kola Peninsula, air transport is the only mode ans of the country. The Portance of civil aviation is reflected in the size of the sector. There were about persons employed in the sector in 1997. The old integrated Aeroflot system has joearnteed co inreto about 340 airlines, with a total fleet of about 8,000 aircraft (of which passenger and cargo planes), serving 845 airports. There are 14 training institiltions and 4 research agencies dedicated to aviation, not including governmental o_troganizations. .Civil aviation is big business: users spend $4-$4.5 billion per year on inestic and international air tickets (about 0.8-0.9 percent of GDP). Prior to 1 991, the Russian'- civil aviation system was a massive vertically-integrated t . ?P°1Y.1 Aeroflot was responsible for everything - air services, airports, air navigation, Collapsed'g ac cident investigation, and virtually all related services. When the Soviet Union air rtLt,he.old Aeroflot ministry-cum-holdingcompany (for all air carrier operations, corn....—""cl air navigation offledgling separate -Tames, systems) shattered into hundreds amidst confusion over the role of the federal government. si ftrt:d escription of J. Aeroflot's structure and performance during the Soviet era, see chapter 7 in J. For'merand MeYer (with C. Harral and G. Smith), Moving to Market: Restructuring Transport in the Soviet Union, (Cambridge, MA,USA: Harvard University Press, 1996), pp. 135-156. 667 The effects of transition have been devastating. Passenger traffic in 1996 was 43 percent of 1991 levels, and only about one-third of the peak 1989 volume. Domestic passenger traffic was about 20% of the maximum levels reached during the 1980s and was still declining through 1996. Ton-mileage in 1996 was just under half of the 1991 level. By 1997, international air passenger traffic and cargo traffic had begun to show growth in line with the economy, while preliminary domestic traffic data indicated that 1997 may have been the first year this decade in which volume has not fallen. Two significant international passenger flows have sprung up since 1992. One is "shopping tourism": small merchants flying to Turkey and the Gulf states to stock up on foodstuffs, liquor, clothing and the like for street kiosks, bringing back large quantities of accompanied luggage. The other is wealthy "new Russians" taking vacations in the Mediterranean. Both rely on charters to circumvent the regional airlines' lack of rights to operate scheduled services under Russia's bilateral agreements. So-called "regular charters" have emerged to serve these market segments. The small trader business is likely to ease off as conventional import/export business matures, but the outbound tourism is likely to keep growing rapidly. These traffic declines have had severe consequences for financial performance and investment. The estimated sector loss in 1996 was 1.7 trillion rubles(about 350 million US dollars, or about 7 percent of revenues). Most airports were reported as profitable; the losses were incurred in airline