Can entry of high-speed rail increase air traffic? Price competition, travel time difference and catchment expansion

While many empirical studies find that high-speed rail (HSR) exercises a downward pressure on air traffic, several studies observe an increase in air traffic after HSR enters the overlapping markets, especially in long-haul markets (over 1000 km). The paper provides a possible theoretical and empirical explanation on the seemingly conflicted findings. With a model of differentiated price competition, we show that air-rail competition can induce more air traffic after the entry of HSR as long as the air travel time is sufficiently shorter than the HSR travel time. The mixed empirical results could be caused by the failure to incorporate both modes’ travel times. Thus, in the empirical part of this paper, we use the difference of HSR and air flight travel times to capture the relative competitiveness of these two competing modes of transport after controlling for the potential catchment expansion effect of HSR. Other route characteristics such as GDP per capita and population of the two endpoint cities, time-invariant route fixed effect and year fixed effect are controlled for in the model as well. Based on a sample of Chinese air routes, our regression analysis confirms the theoretical prediction. In particular, air traffic tends to increase after the entry of HSR if the HSR travel time is over 5 h longer than air travel time. Otherwise, the air traffic tends to reduce. This implies that a large share of sampled Chinese routes, including both medium-haul and long-haul routes, may experience an increase in air traffic.