A comparison of freight distribution costs for combination and dedicated carriers in the air express industry

Prior to deregulation of the airline industry, combination passenger/cargo airlines dominated the air cargo industry. After deregulation, however, dedicated freight carriers aggressively entered the express industry and rapidly grew to dominance. Combination carriers have not completely relinquished this potentially profitable segment of air transportation, and have postured themselves for head-to-head competition with the dedicated freight carriers. This dissertation considers the comparative advantages and costs of combination and dedicated carriers in the overnight air express market.; Historical, logistical, and economical aspects of the air freight industry are considered in analyzing the competitive nature of the industry. First, the evolution of the air freight industry is reviewed to illuminate how government policy fostered or discouraged the specialization of freight and passenger services. Periods of aviation history that demonstrate the shifting of market power between each carrier type are highlighted.; Next, logistic cost models of air express operations are developed. Groundside distribution costs are modeled using continuous approximation techniques, which allow cities of all shapes and sizes, and with any terminal locations, to be analyzed. The impact of time constraints on groundside distribution costs are closely examined. Cost models for freight handling, sorting, and aircraft operations are also developed.; The models are then applied to estimate and compare the average cost per package of freight distribution for a dedicated freight carrier using a hub-and-spoke-network and a combination carrier offering express service on its non-stop routes. The cost comparison demonstrates that while combination carriers have a logistics cost advantage in those parts of the air express market where direct passenger service is available. However, dedicated freight carriers retain their advantage in the lower density markets where such direct service is not available. The results suggest that entry of combination carriers into the air express market could force a division of the market into high and low density segments, with the former featuring higher competition and lower prices. The implications of these advantages and disadvantages on competition for lower priority delivery services, such as two-day and three-day delivery are also discussed.