Modeling Airlines’ Decisions on City-Pair Route Selection Using Discrete Choice Models

Abstract

An approach based on the discrete choice random-utility theory is presented to model airlines’ decisions of strategically adding or deleting city-pair routes. The approach consists of methods for identification of air transportation networks, determination of choice sets, and comparison and validation of developed discrete choice models. The developed approach enables the quantification and estimation of airlines’ decision-making preferences to the identified explanatory variables, including market demand, direct operating costs, distance, and whether terminal airports are hubs or not. It is observed that market demand more significantly affects the decisions on route deletion than their addition. Furthermore, the effect of direct operating costs is significant in the decision of route deletion, whereas it is not in route addition. Finally, airlines’ decisions vary, depending on the airport hub status. These trends are observed consistently over time in the current analysis of historical data from 2004 to 2013. The developed models show better prediction as compared to other models in literature. With the developed models, an air transportation network generator is constructed that, in turn, is used for model validation. This approach benefits those who want to understand airlines’ decision-making behaviors and those who need to understand the past and future evolution of an air transportation network.