Airport taxi service regulation: An analysis of an...

17
145 Transportation 13: 145 -161 (1986) Martinus Nijhoff Publishers, Dordrecht - Printed in the Netherlands Airport taxi service regulation: An analysis of an exclusive ) contract SUMNER 1. LA CROIX, JAMES MAK & WALTER MIKLIUS Department of Economics, University of Hawaii, USA Abstract. Taxi service at a number of major airports is supplied by one taxi company under an exclusive contract with the airport operating authority. Conventional wisdom suggests that airport taxi service produced under exclusive contract is socially inefficient. This was found to be true at the Dallas/Fort Worth Airport. In this paper we analyze the exclusive airport taxi service at Hono- lulu International Airport as a case study. At Honolulu International Airport, the terms of the exclusive airport taxi service contract are far less restrictive than those at Dallas/Fort Worth. Our analysis indicates that exclusive airport service can provide high quality service, reasonable prices and revenues to finance airport service. We conclude that is not the exclusivity, but rather the terms of the contract and the circumstances specific to each market that determines which system is best for a particular place. 1. Introduction Taxicabs play an important role in carrying passengers to and from airports. At some major U.S. airports (e.g., New York Kennedy, Miami International, Boston Logan, and Washington National), taxicabs carry 20 percent or more of the ground passenger traffic leaving the airports (Forstall & Wexler, 1980). The average is about 10070 (Urban Consortium for Technology Initiatives, 1980.). As Kirby (1981, p. 79) has noted, airports have special taxicab demand and supply characteristics. Passengers arriving from out of town may be un- familiar with local taxi rates and services to make informed choices amongst competing services. On the other hand drivers who wait in long taxi queues in hopes of obtaining a high fare trip are reluctant to serve passengers making short trips. In addition to city regulations, airport authorities may also exercise substantial control over airport taxicab service; in many cases airport taxi regu- lations have constrained competition in taxi service. ] Until the mid 1970s, taxi service at a large number of major airports was supplied by one taxi company under an exclusive contract with the airport operating authority. These contracts permitted taxicabs from any company to drop off passengers at the airport, but allowed only one taxi company to pick up (i.e., solicit) passengers leaving the airport. In recent years, several airports have abandoned their previous exclusive arrangements in favor of either a com- pletely open system (e.g., San Francisco and Washington National) which al- . lows all taxis to drop off as well as to pick up passengers, or a permit system

Transcript of Airport taxi service regulation: An analysis of an...

Page 1: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

145 Transportation 13 145 -161 (1986) ~) Martinus Nijhoff Publishers Dordrecht - Printed in the Netherlands

Airport taxi service regulation An analysis of an exclusive

) contract

SUMNER 1 LA CROIX JAMES MAK amp WALTER MIKLIUS

Department of Economics University of Hawaii USA

Abstract Taxi service at a number of major airports is supplied by one taxi company under an exclusive contract with the airport operating authority Conventional wisdom suggests that airport taxi service produced under exclusive contract is socially inefficient This was found to be true at the DallasFort Worth Airport In this paper we analyze the exclusive airport taxi service at Honoshylulu International Airport as a case study At Honolulu International Airport the terms of the exclusive airport taxi service contract are far less restrictive than those at DallasFort Worth Our analysis indicates that exclusive airport service can provide high quality service reasonable prices and revenues to finance airport service We conclude that is not the exclusivity but rather the terms of the contract and the circumstances specific to each market that determines which system is best for a particular place

1 Introduction

Taxicabs play an important role in carrying passengers to and from airports At some major US airports (eg New York Kennedy Miami International Boston Logan and Washington National) taxicabs carry 20 percent or more of the ground passenger traffic leaving the airports (Forstall amp Wexler 1980) The average is about 10070 (Urban Consortium for Technology Initiatives 1980) As Kirby (1981 p 79) has noted airports have special taxicab demand and supply characteristics Passengers arriving from out of town may be unshyfamiliar with local taxi rates and services to make informed choices amongst competing services On the other hand drivers who wait in long taxi queues in hopes of obtaining a high fare trip are reluctant to serve passengers making short trips In addition to city regulations airport authorities may also exercise substantial control over airport taxicab service in many cases airport taxi regushylations have constrained competition in taxi service

]

Until the mid 1970s taxi service at a large number of major airports was supplied by one taxi company under an exclusive contract with the airport operating authority These contracts permitted taxicabs from any company to drop off passengers at the airport but allowed only one taxi company to pick up (ie solicit) passengers leaving the airport In recent years several airports have abandoned their previous exclusive arrangements in favor of either a comshypletely open system (eg San Francisco and Washington National) which al- lows all taxis to drop off as well as to pick up passengers or a permit system

146

(eg Miami and SeattleTocoma) which allows taxis with purchased permits to solicit business at the airport Exclusive arrangements remain at Dulles Inshyternational Pittsburgh Detroit Honolulu and Houston among major US airports 1

A priori one would expect that airport taxi service provided under an exclushysive contract is socially inefficient Airport authorities however contend thatmiddot special taxicab demand and supply characteristics and physical constraints at the airport prevent competition from being effective

In his analysis of the exclusive contract to provide taxi service at the DalshylasFort Worth Airport DeVany (1977 p 2) concluded that objections to an open competitive system cannot be sustained in light of the inefficiency of the present exclusive system and what is known or can be predicted about a competitive system Both DeVany (1977) and Eckert (1973) suggest that the choice of a single taxi operator by airport administrators is due to their prefershyence for a simple life at the expense of economic efficiency

The inefficiency of the DallasFort Worth exclusive contract (abandoned by airport regulators in 1979)2 can however be traced to several restrictive feashytures of this contract which are not contained in exclusive taxi service contracts at other airports These features were (1) a single operator for the taxi and the airporter bus service (2) a requirement that the authorized taxi company at DallasFort Worth provide one-way service only (the deadhead provision) (3) a minimum number of taxicabs dedicated to airport service whether utilized or not and (4) different regulatory authorities setting rates for taxi service in nearby towns and at the airport Requirements (2) and (3) were instated to enshysure sufficient cab service at the airport Unfortunately requirements (2) and (3) also imposed a heavy burden on the airports transportion system as the minimum number of cabs was set well above the airports actual requirements This burden was reflected in the high taxi fares charged at DallasFort Worth Airport relative to the fares charged in the city of Dallas and at other major US airports

There is evidence indicating that DeVanys criticisms may not apply to all exshylusive airport taxi contracts Often the airport authoritys choice of a contract is not based on a simple decision between monopoly (and a simple life) and competition3 For example in Washington DC the Federal Aviation Adshyministration in 1974 opted for an open system at Washington National yet chose an exclusive system at Dulles Internationa14 The purpose of this paper is to test the hypothesis that the terms of the contract rather than its exclusivishyty determine its social efficiency In order to accomplish this task we analyze the effects of a contract with provisions less restrictive than those at DalshylasFort Worth Airport The exclusive contract at the Honolulu International Airport (HIA) serves as a convenient case study

In recent years interest in airport taxi service has also been heightened by

147

recent antitrust suits contending that exclusive airport taxi service contracts at DallasFort Worth Houston and Honolulu International Airports constitute an unreasonable restraint of trade and are therefore illegal under Section 1 of the Sherman Antitrust Act (26 Stat 209)5

The organization of the paper is as follows The next section describes the taxicab industry in Honolulu the regulatory environment in which it operates and the features of the exclusive contract Section 3 is devoted to the examinashytion of taxi service quality at the HIA and section 4 to taxi fares Section 5 considers the issue of deadheading and section 6 the benefits of exclusive taxi service The conclusion is presented in section 7

2 Taxi service regulation in Honolulu and at Honolulu International Airport (HIA)

Honolulu International Airport (HIA) is located in the City and County of Honolulu which comprises the entire Hawaiian island of Oahu HIA is operatshyed by the State of Hawaii State law (HRS 261-4a) vests responsibility for the management and operation of the airport including the regulation of airport taxi service in the Airports Division of the State Department of Transportashytion Airport regulations prohibit anyone from entering HIA to solicit or to pick up passengers without permission from the State At HIA the State decided to have a single taxicab company provide taxicab and dispatch service under an exclusive contract SIDA Taxi of Hawaii was granted a I5-year exclushysive taxi contract in 1978

Between 1971 and 1977 the State experimented with a dual system at HIA SIDA was given an exclusive contract to provide taxi service at the main overshyseas terminal while another taxi company Charleys received an exclusive contract to provide taxi service at the inter-island terminal Charleys failure to fulfill its contractual obligations (Le pay concession fees) led airport authorities to cancel its inter-island contract and to award SIDA a new exclushysive contract to provide service at both terminals Hence SIDA was selected on the basis of its prior satisfactory performance

In exchange for the exclusive right to ort-airport solicitation of passengers SIDA agreed to provide 24-hour 7-day taxi service and to pay concession fees currently set by mutual agreement at 73cent per passenger load having HIA In 1982 SIDA carried 429786 passenger loads from HIA producing $313744 in concession revenues for the States airport revenue fund 6 This was a small sum relative to total concession revenues from all sources of $50 million

Unlike the arrangement in DallasFort Worth the exclusive contract at HIA neither specifies minimum cab requirements nor restricts SIDA drivers from operating in town Indeed based on driver diaries SIDA drivers spend approxshy

148

imately 30 percent of their work time on in-town tripS7 As at other airports with exclusive contracts non-SIDA taxis may drop off passengers at HIA but cannot solicit passengers at the airport and thus must deadhead back to town

SIDA Inc is a not-for-profit dispatch and administrative service owned by an association of about 400 independent owner-drivers Membership is resshytricted and there is typically a pool of applicants on the waiting list Members pay $275 (lump sum) per month into the company to defray operating costs which include the cost to the company of the airport concession fees Excess revenues are returned to members SIDA is currently the largest taxi company in the City and County of Honolulu The next three largest taxi companies have 243 144 and 88 cabs respectively As of August 1983 approximately 1470 taxicabs owned by 193 taxi companies operated on Oahu

While the State of Hawaii regulates taxi service at HIA the City (Le City and County) has also promulgated a set of regulations which applies to all taxshyis operating on Oahu City regulations do not restrict entry into the taxi busishynes~ on Oahu 8 but they do specify a maximum fare (set by the City Council) which taxis are permitted to charge Each taxi company must set one flag drop charge and a single per mile charge for use on all trips at all times on Oahu This regulation effectively eliminates complex pricing alternatives such as peak load pricing Unless the airport authorities pressures the State Legislature to pass overriding legislation or lobby the City to amend its regulations airshyport regulators must accept the City legislation on taxi fares as given

Insofar as a single taxi operator is present at HIA one has to examine the economic consequences of this choice of organizational form on the price and the quality of taxi service at HIA In the next section we shall examine the impact of the State-SIDA exclusive contract on taxi service quality at HIA

3 Taxi service quality at HIA

Other than the requirement for 24-hour 7 -day service the State-SIDA contract specifies no other important service standards Since SIDA membership is resshytricted there is legitimate concern that service quality might be lower under the present exclusive arrangement than in an open system

The most commonly used dimension of service quality that we can measure is passenger waiting time Membership restriction would likely have the greatest impact on service quality during peak demand periods when there might not be a sufficient number of empty cabs to service passenger demand Evidence collected at HIA does not provide any support for this hypothesis The queue of taxicabs appears to be very long and never empty during peak flight arrival periods Passengers may have to wait a short amount of time at curbside as it takes time to move a taxicab from the queue in the holding area to the passenger loading area

149

Table 1 Number of taxicabs in the main and backup queue HIA August 27 1983

Time flain airport Backup queue Total

queue

900 am 16 43 59

930 24 39 63

1000 19 43 62

1030 15 17 32

1100 29 36 66

II 30 32 42 74

1200 noon 22 7 29

1230 pm 56 0 56

100 35 34 69

130 21 73 94

200 36 60 96

230 17 75 92

300 26 74 100

To verify that the queue is never empty the number of taxicabs waiting in the queue at the HIA main terminal and in the SIDA backup queue off the terminal was counted at half-hour intervals on Saturday August 27 1983 from 900 am to 300 pm August is the peak month for passenger arrivals This time period was selected because Saturday is a weekly arrival peak day and the hours selected are the peak arrival hours If any shortage of taxicabs were to exist it would most likely occur during the selected period The results are shown in Table 1 On the average 69 taxicabs were waiting in the queue Durshying this period the queue of taxis never fell to zero Even during peak hours the queue was very long Indeed a survey of randomly selected SIDA drivers on two separate days one a peak day the other an off-peak day - - revshyealed that on the peak day a SIDA driver had to wait an average of 55 minutes at the airport before picking up a paying load on the off-peak day the average was 86 minutes9

The observed long queue of taxicabs at HIA should not be attributed to the exclusive contract as the same phenomenon is observed at airports with open systems Schroeter (1983) attributed the long queue to the fare structure He demonstrated that when the flag-drop charge is low relative to the per mile charge drivers prefer to wait longer for a single long airport trip rather than provide several short trips in the city

Evidence presented here indicates that the quality of taxi service at HIA unshyder an exclusive contract is high and that a change to an open system would not improve service quality

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 2: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

146

(eg Miami and SeattleTocoma) which allows taxis with purchased permits to solicit business at the airport Exclusive arrangements remain at Dulles Inshyternational Pittsburgh Detroit Honolulu and Houston among major US airports 1

A priori one would expect that airport taxi service provided under an exclushysive contract is socially inefficient Airport authorities however contend thatmiddot special taxicab demand and supply characteristics and physical constraints at the airport prevent competition from being effective

In his analysis of the exclusive contract to provide taxi service at the DalshylasFort Worth Airport DeVany (1977 p 2) concluded that objections to an open competitive system cannot be sustained in light of the inefficiency of the present exclusive system and what is known or can be predicted about a competitive system Both DeVany (1977) and Eckert (1973) suggest that the choice of a single taxi operator by airport administrators is due to their prefershyence for a simple life at the expense of economic efficiency

The inefficiency of the DallasFort Worth exclusive contract (abandoned by airport regulators in 1979)2 can however be traced to several restrictive feashytures of this contract which are not contained in exclusive taxi service contracts at other airports These features were (1) a single operator for the taxi and the airporter bus service (2) a requirement that the authorized taxi company at DallasFort Worth provide one-way service only (the deadhead provision) (3) a minimum number of taxicabs dedicated to airport service whether utilized or not and (4) different regulatory authorities setting rates for taxi service in nearby towns and at the airport Requirements (2) and (3) were instated to enshysure sufficient cab service at the airport Unfortunately requirements (2) and (3) also imposed a heavy burden on the airports transportion system as the minimum number of cabs was set well above the airports actual requirements This burden was reflected in the high taxi fares charged at DallasFort Worth Airport relative to the fares charged in the city of Dallas and at other major US airports

There is evidence indicating that DeVanys criticisms may not apply to all exshylusive airport taxi contracts Often the airport authoritys choice of a contract is not based on a simple decision between monopoly (and a simple life) and competition3 For example in Washington DC the Federal Aviation Adshyministration in 1974 opted for an open system at Washington National yet chose an exclusive system at Dulles Internationa14 The purpose of this paper is to test the hypothesis that the terms of the contract rather than its exclusivishyty determine its social efficiency In order to accomplish this task we analyze the effects of a contract with provisions less restrictive than those at DalshylasFort Worth Airport The exclusive contract at the Honolulu International Airport (HIA) serves as a convenient case study

In recent years interest in airport taxi service has also been heightened by

147

recent antitrust suits contending that exclusive airport taxi service contracts at DallasFort Worth Houston and Honolulu International Airports constitute an unreasonable restraint of trade and are therefore illegal under Section 1 of the Sherman Antitrust Act (26 Stat 209)5

The organization of the paper is as follows The next section describes the taxicab industry in Honolulu the regulatory environment in which it operates and the features of the exclusive contract Section 3 is devoted to the examinashytion of taxi service quality at the HIA and section 4 to taxi fares Section 5 considers the issue of deadheading and section 6 the benefits of exclusive taxi service The conclusion is presented in section 7

2 Taxi service regulation in Honolulu and at Honolulu International Airport (HIA)

Honolulu International Airport (HIA) is located in the City and County of Honolulu which comprises the entire Hawaiian island of Oahu HIA is operatshyed by the State of Hawaii State law (HRS 261-4a) vests responsibility for the management and operation of the airport including the regulation of airport taxi service in the Airports Division of the State Department of Transportashytion Airport regulations prohibit anyone from entering HIA to solicit or to pick up passengers without permission from the State At HIA the State decided to have a single taxicab company provide taxicab and dispatch service under an exclusive contract SIDA Taxi of Hawaii was granted a I5-year exclushysive taxi contract in 1978

Between 1971 and 1977 the State experimented with a dual system at HIA SIDA was given an exclusive contract to provide taxi service at the main overshyseas terminal while another taxi company Charleys received an exclusive contract to provide taxi service at the inter-island terminal Charleys failure to fulfill its contractual obligations (Le pay concession fees) led airport authorities to cancel its inter-island contract and to award SIDA a new exclushysive contract to provide service at both terminals Hence SIDA was selected on the basis of its prior satisfactory performance

In exchange for the exclusive right to ort-airport solicitation of passengers SIDA agreed to provide 24-hour 7-day taxi service and to pay concession fees currently set by mutual agreement at 73cent per passenger load having HIA In 1982 SIDA carried 429786 passenger loads from HIA producing $313744 in concession revenues for the States airport revenue fund 6 This was a small sum relative to total concession revenues from all sources of $50 million

Unlike the arrangement in DallasFort Worth the exclusive contract at HIA neither specifies minimum cab requirements nor restricts SIDA drivers from operating in town Indeed based on driver diaries SIDA drivers spend approxshy

148

imately 30 percent of their work time on in-town tripS7 As at other airports with exclusive contracts non-SIDA taxis may drop off passengers at HIA but cannot solicit passengers at the airport and thus must deadhead back to town

SIDA Inc is a not-for-profit dispatch and administrative service owned by an association of about 400 independent owner-drivers Membership is resshytricted and there is typically a pool of applicants on the waiting list Members pay $275 (lump sum) per month into the company to defray operating costs which include the cost to the company of the airport concession fees Excess revenues are returned to members SIDA is currently the largest taxi company in the City and County of Honolulu The next three largest taxi companies have 243 144 and 88 cabs respectively As of August 1983 approximately 1470 taxicabs owned by 193 taxi companies operated on Oahu

While the State of Hawaii regulates taxi service at HIA the City (Le City and County) has also promulgated a set of regulations which applies to all taxshyis operating on Oahu City regulations do not restrict entry into the taxi busishynes~ on Oahu 8 but they do specify a maximum fare (set by the City Council) which taxis are permitted to charge Each taxi company must set one flag drop charge and a single per mile charge for use on all trips at all times on Oahu This regulation effectively eliminates complex pricing alternatives such as peak load pricing Unless the airport authorities pressures the State Legislature to pass overriding legislation or lobby the City to amend its regulations airshyport regulators must accept the City legislation on taxi fares as given

Insofar as a single taxi operator is present at HIA one has to examine the economic consequences of this choice of organizational form on the price and the quality of taxi service at HIA In the next section we shall examine the impact of the State-SIDA exclusive contract on taxi service quality at HIA

3 Taxi service quality at HIA

Other than the requirement for 24-hour 7 -day service the State-SIDA contract specifies no other important service standards Since SIDA membership is resshytricted there is legitimate concern that service quality might be lower under the present exclusive arrangement than in an open system

The most commonly used dimension of service quality that we can measure is passenger waiting time Membership restriction would likely have the greatest impact on service quality during peak demand periods when there might not be a sufficient number of empty cabs to service passenger demand Evidence collected at HIA does not provide any support for this hypothesis The queue of taxicabs appears to be very long and never empty during peak flight arrival periods Passengers may have to wait a short amount of time at curbside as it takes time to move a taxicab from the queue in the holding area to the passenger loading area

149

Table 1 Number of taxicabs in the main and backup queue HIA August 27 1983

Time flain airport Backup queue Total

queue

900 am 16 43 59

930 24 39 63

1000 19 43 62

1030 15 17 32

1100 29 36 66

II 30 32 42 74

1200 noon 22 7 29

1230 pm 56 0 56

100 35 34 69

130 21 73 94

200 36 60 96

230 17 75 92

300 26 74 100

To verify that the queue is never empty the number of taxicabs waiting in the queue at the HIA main terminal and in the SIDA backup queue off the terminal was counted at half-hour intervals on Saturday August 27 1983 from 900 am to 300 pm August is the peak month for passenger arrivals This time period was selected because Saturday is a weekly arrival peak day and the hours selected are the peak arrival hours If any shortage of taxicabs were to exist it would most likely occur during the selected period The results are shown in Table 1 On the average 69 taxicabs were waiting in the queue Durshying this period the queue of taxis never fell to zero Even during peak hours the queue was very long Indeed a survey of randomly selected SIDA drivers on two separate days one a peak day the other an off-peak day - - revshyealed that on the peak day a SIDA driver had to wait an average of 55 minutes at the airport before picking up a paying load on the off-peak day the average was 86 minutes9

The observed long queue of taxicabs at HIA should not be attributed to the exclusive contract as the same phenomenon is observed at airports with open systems Schroeter (1983) attributed the long queue to the fare structure He demonstrated that when the flag-drop charge is low relative to the per mile charge drivers prefer to wait longer for a single long airport trip rather than provide several short trips in the city

Evidence presented here indicates that the quality of taxi service at HIA unshyder an exclusive contract is high and that a change to an open system would not improve service quality

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 3: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

147

recent antitrust suits contending that exclusive airport taxi service contracts at DallasFort Worth Houston and Honolulu International Airports constitute an unreasonable restraint of trade and are therefore illegal under Section 1 of the Sherman Antitrust Act (26 Stat 209)5

The organization of the paper is as follows The next section describes the taxicab industry in Honolulu the regulatory environment in which it operates and the features of the exclusive contract Section 3 is devoted to the examinashytion of taxi service quality at the HIA and section 4 to taxi fares Section 5 considers the issue of deadheading and section 6 the benefits of exclusive taxi service The conclusion is presented in section 7

2 Taxi service regulation in Honolulu and at Honolulu International Airport (HIA)

Honolulu International Airport (HIA) is located in the City and County of Honolulu which comprises the entire Hawaiian island of Oahu HIA is operatshyed by the State of Hawaii State law (HRS 261-4a) vests responsibility for the management and operation of the airport including the regulation of airport taxi service in the Airports Division of the State Department of Transportashytion Airport regulations prohibit anyone from entering HIA to solicit or to pick up passengers without permission from the State At HIA the State decided to have a single taxicab company provide taxicab and dispatch service under an exclusive contract SIDA Taxi of Hawaii was granted a I5-year exclushysive taxi contract in 1978

Between 1971 and 1977 the State experimented with a dual system at HIA SIDA was given an exclusive contract to provide taxi service at the main overshyseas terminal while another taxi company Charleys received an exclusive contract to provide taxi service at the inter-island terminal Charleys failure to fulfill its contractual obligations (Le pay concession fees) led airport authorities to cancel its inter-island contract and to award SIDA a new exclushysive contract to provide service at both terminals Hence SIDA was selected on the basis of its prior satisfactory performance

In exchange for the exclusive right to ort-airport solicitation of passengers SIDA agreed to provide 24-hour 7-day taxi service and to pay concession fees currently set by mutual agreement at 73cent per passenger load having HIA In 1982 SIDA carried 429786 passenger loads from HIA producing $313744 in concession revenues for the States airport revenue fund 6 This was a small sum relative to total concession revenues from all sources of $50 million

Unlike the arrangement in DallasFort Worth the exclusive contract at HIA neither specifies minimum cab requirements nor restricts SIDA drivers from operating in town Indeed based on driver diaries SIDA drivers spend approxshy

148

imately 30 percent of their work time on in-town tripS7 As at other airports with exclusive contracts non-SIDA taxis may drop off passengers at HIA but cannot solicit passengers at the airport and thus must deadhead back to town

SIDA Inc is a not-for-profit dispatch and administrative service owned by an association of about 400 independent owner-drivers Membership is resshytricted and there is typically a pool of applicants on the waiting list Members pay $275 (lump sum) per month into the company to defray operating costs which include the cost to the company of the airport concession fees Excess revenues are returned to members SIDA is currently the largest taxi company in the City and County of Honolulu The next three largest taxi companies have 243 144 and 88 cabs respectively As of August 1983 approximately 1470 taxicabs owned by 193 taxi companies operated on Oahu

While the State of Hawaii regulates taxi service at HIA the City (Le City and County) has also promulgated a set of regulations which applies to all taxshyis operating on Oahu City regulations do not restrict entry into the taxi busishynes~ on Oahu 8 but they do specify a maximum fare (set by the City Council) which taxis are permitted to charge Each taxi company must set one flag drop charge and a single per mile charge for use on all trips at all times on Oahu This regulation effectively eliminates complex pricing alternatives such as peak load pricing Unless the airport authorities pressures the State Legislature to pass overriding legislation or lobby the City to amend its regulations airshyport regulators must accept the City legislation on taxi fares as given

Insofar as a single taxi operator is present at HIA one has to examine the economic consequences of this choice of organizational form on the price and the quality of taxi service at HIA In the next section we shall examine the impact of the State-SIDA exclusive contract on taxi service quality at HIA

3 Taxi service quality at HIA

Other than the requirement for 24-hour 7 -day service the State-SIDA contract specifies no other important service standards Since SIDA membership is resshytricted there is legitimate concern that service quality might be lower under the present exclusive arrangement than in an open system

The most commonly used dimension of service quality that we can measure is passenger waiting time Membership restriction would likely have the greatest impact on service quality during peak demand periods when there might not be a sufficient number of empty cabs to service passenger demand Evidence collected at HIA does not provide any support for this hypothesis The queue of taxicabs appears to be very long and never empty during peak flight arrival periods Passengers may have to wait a short amount of time at curbside as it takes time to move a taxicab from the queue in the holding area to the passenger loading area

149

Table 1 Number of taxicabs in the main and backup queue HIA August 27 1983

Time flain airport Backup queue Total

queue

900 am 16 43 59

930 24 39 63

1000 19 43 62

1030 15 17 32

1100 29 36 66

II 30 32 42 74

1200 noon 22 7 29

1230 pm 56 0 56

100 35 34 69

130 21 73 94

200 36 60 96

230 17 75 92

300 26 74 100

To verify that the queue is never empty the number of taxicabs waiting in the queue at the HIA main terminal and in the SIDA backup queue off the terminal was counted at half-hour intervals on Saturday August 27 1983 from 900 am to 300 pm August is the peak month for passenger arrivals This time period was selected because Saturday is a weekly arrival peak day and the hours selected are the peak arrival hours If any shortage of taxicabs were to exist it would most likely occur during the selected period The results are shown in Table 1 On the average 69 taxicabs were waiting in the queue Durshying this period the queue of taxis never fell to zero Even during peak hours the queue was very long Indeed a survey of randomly selected SIDA drivers on two separate days one a peak day the other an off-peak day - - revshyealed that on the peak day a SIDA driver had to wait an average of 55 minutes at the airport before picking up a paying load on the off-peak day the average was 86 minutes9

The observed long queue of taxicabs at HIA should not be attributed to the exclusive contract as the same phenomenon is observed at airports with open systems Schroeter (1983) attributed the long queue to the fare structure He demonstrated that when the flag-drop charge is low relative to the per mile charge drivers prefer to wait longer for a single long airport trip rather than provide several short trips in the city

Evidence presented here indicates that the quality of taxi service at HIA unshyder an exclusive contract is high and that a change to an open system would not improve service quality

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 4: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

148

imately 30 percent of their work time on in-town tripS7 As at other airports with exclusive contracts non-SIDA taxis may drop off passengers at HIA but cannot solicit passengers at the airport and thus must deadhead back to town

SIDA Inc is a not-for-profit dispatch and administrative service owned by an association of about 400 independent owner-drivers Membership is resshytricted and there is typically a pool of applicants on the waiting list Members pay $275 (lump sum) per month into the company to defray operating costs which include the cost to the company of the airport concession fees Excess revenues are returned to members SIDA is currently the largest taxi company in the City and County of Honolulu The next three largest taxi companies have 243 144 and 88 cabs respectively As of August 1983 approximately 1470 taxicabs owned by 193 taxi companies operated on Oahu

While the State of Hawaii regulates taxi service at HIA the City (Le City and County) has also promulgated a set of regulations which applies to all taxshyis operating on Oahu City regulations do not restrict entry into the taxi busishynes~ on Oahu 8 but they do specify a maximum fare (set by the City Council) which taxis are permitted to charge Each taxi company must set one flag drop charge and a single per mile charge for use on all trips at all times on Oahu This regulation effectively eliminates complex pricing alternatives such as peak load pricing Unless the airport authorities pressures the State Legislature to pass overriding legislation or lobby the City to amend its regulations airshyport regulators must accept the City legislation on taxi fares as given

Insofar as a single taxi operator is present at HIA one has to examine the economic consequences of this choice of organizational form on the price and the quality of taxi service at HIA In the next section we shall examine the impact of the State-SIDA exclusive contract on taxi service quality at HIA

3 Taxi service quality at HIA

Other than the requirement for 24-hour 7 -day service the State-SIDA contract specifies no other important service standards Since SIDA membership is resshytricted there is legitimate concern that service quality might be lower under the present exclusive arrangement than in an open system

The most commonly used dimension of service quality that we can measure is passenger waiting time Membership restriction would likely have the greatest impact on service quality during peak demand periods when there might not be a sufficient number of empty cabs to service passenger demand Evidence collected at HIA does not provide any support for this hypothesis The queue of taxicabs appears to be very long and never empty during peak flight arrival periods Passengers may have to wait a short amount of time at curbside as it takes time to move a taxicab from the queue in the holding area to the passenger loading area

149

Table 1 Number of taxicabs in the main and backup queue HIA August 27 1983

Time flain airport Backup queue Total

queue

900 am 16 43 59

930 24 39 63

1000 19 43 62

1030 15 17 32

1100 29 36 66

II 30 32 42 74

1200 noon 22 7 29

1230 pm 56 0 56

100 35 34 69

130 21 73 94

200 36 60 96

230 17 75 92

300 26 74 100

To verify that the queue is never empty the number of taxicabs waiting in the queue at the HIA main terminal and in the SIDA backup queue off the terminal was counted at half-hour intervals on Saturday August 27 1983 from 900 am to 300 pm August is the peak month for passenger arrivals This time period was selected because Saturday is a weekly arrival peak day and the hours selected are the peak arrival hours If any shortage of taxicabs were to exist it would most likely occur during the selected period The results are shown in Table 1 On the average 69 taxicabs were waiting in the queue Durshying this period the queue of taxis never fell to zero Even during peak hours the queue was very long Indeed a survey of randomly selected SIDA drivers on two separate days one a peak day the other an off-peak day - - revshyealed that on the peak day a SIDA driver had to wait an average of 55 minutes at the airport before picking up a paying load on the off-peak day the average was 86 minutes9

The observed long queue of taxicabs at HIA should not be attributed to the exclusive contract as the same phenomenon is observed at airports with open systems Schroeter (1983) attributed the long queue to the fare structure He demonstrated that when the flag-drop charge is low relative to the per mile charge drivers prefer to wait longer for a single long airport trip rather than provide several short trips in the city

Evidence presented here indicates that the quality of taxi service at HIA unshyder an exclusive contract is high and that a change to an open system would not improve service quality

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 5: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

149

Table 1 Number of taxicabs in the main and backup queue HIA August 27 1983

Time flain airport Backup queue Total

queue

900 am 16 43 59

930 24 39 63

1000 19 43 62

1030 15 17 32

1100 29 36 66

II 30 32 42 74

1200 noon 22 7 29

1230 pm 56 0 56

100 35 34 69

130 21 73 94

200 36 60 96

230 17 75 92

300 26 74 100

To verify that the queue is never empty the number of taxicabs waiting in the queue at the HIA main terminal and in the SIDA backup queue off the terminal was counted at half-hour intervals on Saturday August 27 1983 from 900 am to 300 pm August is the peak month for passenger arrivals This time period was selected because Saturday is a weekly arrival peak day and the hours selected are the peak arrival hours If any shortage of taxicabs were to exist it would most likely occur during the selected period The results are shown in Table 1 On the average 69 taxicabs were waiting in the queue Durshying this period the queue of taxis never fell to zero Even during peak hours the queue was very long Indeed a survey of randomly selected SIDA drivers on two separate days one a peak day the other an off-peak day - - revshyealed that on the peak day a SIDA driver had to wait an average of 55 minutes at the airport before picking up a paying load on the off-peak day the average was 86 minutes9

The observed long queue of taxicabs at HIA should not be attributed to the exclusive contract as the same phenomenon is observed at airports with open systems Schroeter (1983) attributed the long queue to the fare structure He demonstrated that when the flag-drop charge is low relative to the per mile charge drivers prefer to wait longer for a single long airport trip rather than provide several short trips in the city

Evidence presented here indicates that the quality of taxi service at HIA unshyder an exclusive contract is high and that a change to an open system would not improve service quality

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 6: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

150

4 Taxi fares at HIA

The State-SIDA contract makes no mention of taxi fares at the airport If SIDA could set whatever rate it desires one might observe SIDA setting a rate higher than the competitive rate Further it might prefer to charge a higher rate late at night and early in the morning when on-airport rental car and shuttle bus services are unavailable But as noted earlier the City Council sets one maximum rate for all taxicab companies on Oahu for all trips including trips to and from HIA Since 1982 that rate has been $140 for the flag-drop and $120 per mile Taxi companies on Oahu may charge less than the maximum rate but not above it City regulations require all cabs in the same company to charge the same rate and require each taxi meter be set to the company specified rate by the Hawaii State Department of Agriculture Division of Weights and Measures Information supplied by the Division of Weights and Measures on taxi fares charged by each taxi company (August 29 1983) revshyealed that among the 193 taxi companies 191 charged the maximum rate Only two companies charged less than the maximum rate - - the second largest cab company in Honolulu with 243 cabs and a much smaller company with 21 cabs Both charged the maximum mileage rate ($120) but charged a lower flag-drop rate ($100 vs $140) Since the typical (mean) fare on taxi trips in town based on SIDA driver diaries is $450 (the minimum observed was $260) and $1200 on airport trips it is clearly the mileage charge that detershymines the demand for long taxi trips While proponents of maximum (rather than fixed) fares hoped that maximum rates would produce vigorous price competition the available evidence shows that this goal has not been achieved in Honolulu The same situation was found in Portland Oregon where all taxshyicab companies charged the maximum rate shortly after maximum fares were introduced (Gelb 1980 p 46)

One possible explanation for the lack of price competition among taxi comshypanies in Honolulu is that the current maximum rate was set close to the comshypetitive rate A comparison of the taxi rates in Honolulu with those in the city of Seattle sheds some light on this hypothesis

Seattle provides an excellent case study because it has both unrestricted enshytry into its taxi industry as well as open rate setting Since 1979 taxi companies in Seattle have been able to set whatever rates they desire as long as they forshymally file their rate proposals with the regulatory authorities Rate fillings may be changed quarterly The implication of unrestricted entry and open rate setshyting is that the industry average rates in Seattle should reflect competitive rates A comparison of Honolulu maximum rate segments versus the mean Seattle rate segments reveals the following (Gelb 1983 p 52)

In 1981 visitors riding taxis in Seattle had a mean group size of 17 riders as compared to 13 for residents (Gelb 1983 p 103) To facilitate comparison of

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 7: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

151

Honolulu Seattle (1982 - 1983) (Nov 1981 April 1982)

Flag drop $140 $112

Mileage 120 120 Extra Passenger 25 after three people 74 after one person

the Seattle rate with the Honolulu rate the Seattle fixed charge (flag-drop) must be adjusted upward to account for the extra person charge after one pershyson yielding adjusted flag-drop rates of $134 for residents and $164 for visishytors These figures indicate that under reasonably similar operating conditions the Honolulu maximum rate is close to the average rate in Seattle despite the generally higher costs of doing business in Honolulu

It is likely however that the Honolulu maximum rate as elsewhere is set for high density in-town trips Since trips from HIA are longer and cabs travel at higher speeds it is likely that costs per passenger mile are lower on airport trips than on in-town trips This implies that trips from the airport could be priced below the maximum rate set by the City Council At the same time economic theory predicts that the monopolist (SIDA) would charge the maximum rate so long as that rate is less than the monopoly rate This analysis suggests that SIDA drivers could potentially earn monopoly rents under the exclusive conshytract Payment by SIDA of a concession fee certainly supports the proposition that rents are being generated Yet when we examine the work diaries kept by SIDA drivers they revealed that gross earnings per hour worked excluding tips averaged just under $700 After subtracting membership fees (which inshyclude concession fees paid to the State) as well as estimated ownership and operating costs SIDA drivers could not be earning much more than the Federshyal minimum wage 10 We conclude from this analysis that rents to SIDA drivers are being extracted by the State through the concession fees

Would a change to an open system at HIA promote price competition We suggest that it would not for two quite different reasons First large numbers of arriving passengers lack adequate information regarding local taxi fares the best route to their destination and the precise distance to their destination Second the first-in first-out (FIFO) queue discipline imposed upon waiting taxis raises the cost of consumer search

Most deplaning passengers at HIA do not have information about taxi servshyice taxi fares and travel routes as 9000 are tourists and 60 have never previshyously visited Hawaiill It is highly likely that for any plausible distribution of taxi fares among waiting taxis (the distribution would be truncated by the citys maximum fare limitation) passengers would take the first cab that emerged from the queue George Stiglers search model provides four rationales for this result 12 First the variation in fares is limited by City regulations which specishy

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 8: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

152

fy a maximum fare Since consumers have less to gain from search when the variation in price across producers is lower the optimal number of searches will be reduced Second consumer search is most profitable when expenditures on the product take up a large proportion of family income - a ten percent saving on a $300 product saves more resources than a ten percent saving on a $1695 bestseller Since a $12-$15 taxi ride absorbs only a small percentage of a passengers wealth passenger search across taxi companies should not be commonly observed Third the gains from search are larger when they can be applied over many purchases of the product For many tourists deplaning at HIA only one visit to Honolulu is anticipated thereby reducing the expected amount of search activity Finally individuals who place high values on their time are likely to search less than individuals who place low values on their time Since tourists visiting Honolulu have considerably higher incomes than the national average we should expect once again less search activity by deplaning passengers at HIA Combined with a small per trip fare dispersion these four factors suggest most passenger would take the first cab out ot the queue Given the behaviour of their potential customers there would be little incentive for taxis to engage in price competition

Another factor which deters price competition by taxis at airports is the FIFO (first-in first-out) queue discipline used at most major United States airshyports Long queues of empty taxicabs are common at these airports In order to maintain order and smooth traffic flow airport administrators usually adopt a FIFO queueing rule for airport taxi service In fact the restrictive deshysign of HIAs physical plant mandates that the administrators use a FIFO queue rule To institute a different procedure would require a costly major redesign and reconstruction of several airport facilities

The major effect of the FIFO rule is to eliminate taxis incentive to engage in price competition A passengers option to call up a taxi of his choice is seshyverely limited by the rule as the FIFO queue essentially restricts passengers to examine taxis in the order they are lined up in the queue That is taxis must be examined sequentially This procedure differs from the usual consumer search procedure where choices are made over options that are displayed simulshytaneously The deleterious effect of the FIFO rule on taxi price competition was noted in both San Diego and SeattleTacoma Airports (Kirby 1981 Gelb 1980 and 1983) subsequent to the relaxation of controls on taxicab fares Opershyators could set very high fares and remain confident of getting regular busishyness

The lack of information on the part of passengers and the FIFO queue imshyposed on taxi operators combine to frustrate price competition in airport taxi service Foerster amp Gilbert (1979 p 381) have argued that in the absence of real price competition there will only be upward price pressure and therefore the ceiling price may become the effective fixed price This indeed was obshy

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 9: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

153

served at SeattleTacoma Airport after rate regulation was re-instated Zerbe (1983 p 47) observed that [t]he maximum rate has tended to become the rate Thus available evidence indicates it is unlikely that a change from the present closed system at HIA to an open system would lead to greater price competition and lower taxi fares

5 Deadheading and economic efficiency

One of the alleged inefficiencies of the exlusive airport contract is that taxis not part of the airport franchise must deadhead from the airport after leaving a fare To determine the extent of deadheading at HIA a one-day count was made of taxis arriving at HIAs main terminal 13 Results revealed that 41 different taxi companies brought passengers to the HIA and that SIDA acshycounted for nearly one-third (321 070) of all taxicab arrivals (Table 2)

There are no annual data on taxicab arrivals at HIA A tally by the Los Anshygeles consulting firm of PRe Voorhees Inc (1983) during the month of Aushygust 1981 showed a slightly greater number of taxis leaving than entering HIA the ratio is approximately 52 leaving and 48 entering This imbalance in taxi traffic is commonly observed at major US airports In 1982 SIDA recorded 429786 passenger loads leaving HIA If the Voorhees ratios are apshyplicable to 1982 then the number of taxis with passengers entering HIA in 1982 must have numbered around 397000 with non-SIDA cabs accounting for roughly 270000 arrivals Under the States airport taxi contract with SIDA these 270000 cabs were required to deadhead to town

While the airport taxi contract legally imposes a one-way deadheading reshyquirement on non-SIDA taxis bringing fares to HIA SIDA drivers diaries l4

indicate that there is a substantial amount of deadheading by SIDA cabs in the

Table 2 Distribution of taxicabs arriving at HIA main terminal

Company Frequency 00 of total arrivals

SIDA 161 321 Trade Wind 109 217 Charleys 72 143

Waikiki Transport 32 64

Kalia 32 64

Other 96 191 Total of all taxis 502 1000

Source SMS Inc (Honolulu Hawaii 1983) The count was made on September 22 1983 between 600 am and 600 pm See also note 13

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 10: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

154

Table 3 SIDA airport-IO-lOwn and deadhead trips

HIA-to-town Deadhead trips trips

To HIA To town from town from HIA

Peak day 231 141

Off-peak day 175 99 3

Note Based on 57 trip sheets for each day and excludes the home to work trip at the beginning

of the day

opposite direction Le from town to HIA Table 3 displays the distribution of airport-to-town and deadhead trips by SIDA cabs for a typical peak and offshypeak day during August 1983 The ratio of deadhead trips to HIA-to-town to HIA-to-town trips was 61070 on the peak day and 57070 on the off-peak day The average was 59070 This means that among the 429786 (passenger-carrying) SIDA cabs that left HIA in 1982 approximately 254000 cabs returned to HIA without paying passengers Indeed the number of deadhead trips by SIDA taxis from town to HIA almost equalled the number of deadhead trips by nonshySIDA taxis from HIA to town

One may argue that the present airport taxi contract also explains at least partially SIDA drivers deadheading to HIA Since SIDA cabs are permitted to operate at the airport and in town the decision by SIDA drivers either to deadhead to the airport or to remain in town after leaving a fare depends on which location will likely yield the highest expected profits In equilibrium the expected return to cab drivers must be equal in both locations Since non-SIDA drivers must presently deadhead to town thereby swelling the ranks of empty cabs in town and increasing the expected wait for a customer the hypothesis is that many SIDA drivers now find it more profitable to return empty to the airport

How much of the present deadheading can be attributed to the airport taxi contract is difficult if not virtually impossible to determine It is clear however that there is no way to eliminate deadheading even without the exclusive airshyport contract

One reason is the difference between flight arrival and departure schedules More flights leave than arrive in the mornings by contrast more flights arrive than leave in the afternoons This is also reflected in the taxi arrival and deparshyture rates at HIA A one-day comparison of taxi arrivals and departures at HIAs main terminal (Thble 4) indicated that from 6 am to 12 noon 385 taxis delivered passengers to HIA while 288 taxis departed with passengers Howevshyer from 12 noon to 6 pm there was a significant change in this pattern Durshying this period only 117 taxis brought passengers to the HIA but 414 taxis

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 11: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

155

Table 4 Number of taxicab arriving and departing with passengers from main terminal of HIA on September 22 1983 600 am to 600 pm

Time Number of Number of arriving taxicabs departing taxicabs

600 700 46 23 700 800 69 0 800shy 900 66 60 900 1000 68 75

000 1100 74 79 1100 1200 62 51 1200 - 1300 42 124

1300- 1400 22 34

1400 1500 20 80

1500 1600 16 42

1600 1700 16 92

1700 1800 2 -

42 -Total 503 702

Sources Number of arriving cabs were counted by SMS Inc Honolulu the number of departshying cabs were supplied by SIDA Inc

departed from the HIA with passengers Thus the scheduled pattern of flight arrivals and departures would probably produce a large number of deadhead trips in both directions even under an open system

The second reason is the nature of the taxi trip itself For example a short trip out of the airport will cause a taxicab to deadhead back to the airport (Similarly a short trip in town is likely to induce a cab driver to deadhead to hisher original taxi stand in town) Furthermore deadheading is unavoidable if the trip from HIA is to an outlying andor sparsely populated area where the probability of a return fare is nil

Another reason is that a change from an exclusive system to an open system will likely change the structure of the airport taxicab service This was observed at Sea-Thc Airport (Seattle) when it was changed from an exclusive system to an open system (See Gelb 1983) The proportion of airport taxis affiliated with large fleets dropped from 57 in 1979 to 298 in 1981 On the other hand the proportion of vehicles from mini-fleet operations (2- 3 cabs) and unaffiliated single-cab companies - - ie those most likely to lack a radio disshypatch service increased to 702070 Thus during this period taxicab compashynies with large fleets deemphasized the airport trade and increasingly concenshytrated on the intra-city radio dispatch business in which they held a comparashytive advantage

It is likely that the experience of Sea-Tac Airport would be repeated at HIA if the present exclusive airport taxi system were replaced by an open system

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 12: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

156

Unaffiliated single-cab or small companies will soon dominate the airport exit trade with SIDA drivers (and others affiliated with large dispatch companies) increasingly shifting out of the airport exit trade because their comparative adshyvantage would now lie in the radio dispatch business in town and in the taxi traffic bound for RIA The latter point requires more elaboration

As mentioned earlier the one-day tally of taxicabs arriving at HIAs main terminal noted that 41 different taxicab companies brought passengers to the airport Moreover the inbound (to HIA) taxi business appears to be highly concentrated as 5 taxi companies (including SIDA) all with exclusive hotel stands in Waikiki accounted for over 80010 of all taxis arriving at HIA (Tashyble 2) In short the ability to compete for business in the town-to-airport taxi market depends critically on a taxi companys ability to acquire exclusive hotel stands in Waikiki Since small or single-cab companies cannot meet the deshymand for taxi service at the larger hotels in Waikiki they are unlikely to obtain the exclusive taxi stands at the hotels The result is that cabs from large compamiddot nies that have hotel stands will continue to dominate the taxi business bound for HIA and many will deadhead back to town while cabs from small fleeH and single-cab companies will dominate the taxi business exiting HIA but theil best strategy will be to deadhead back to the airport Hence even under ar open system the change in the structure of the airport taxi business combinec with exclusive hotel stands in Waikiki will ensure that substantial amount 0

deadheading will remain in the airport taxi business The reasons given here suggest that it is virtually impossible to place (

reasonable guess on the amount of deadheading that could be eliminated if thl present exclusive taxi system at the airport were replaced by an open system DeVany suggests that at DallasFort Worth Airport about half the deadhead ing miles could be eliminated by eliminating the two-way deadheading require ment At HIA however the relative amount of deadheading that could b reduced by a change to an open system would be much less in part becaus the airport taxi contract at HIA is less restrictive (ie it imposes only one-wa deadheading rather than two-way deadheading) in addition exclusive hote stands in Honolulu will continue to force a substantial amount of deadheadin even if an open system were adopted at HIA

6 Benefits of exclusive taxi service

In the previous section we suggested that one of the potential problems wit the exclusive taxi service at HIA is the potential waste that stems from deac heading In this section we present some of the potential benefits of the close system

As we noted earlier the City Council sets a single maximum fare StructUI

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 13: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

157

for all taxis and for all trips in Honolulu We have argued however that the present maximum rate structure is probably too high for airport-to-town trips and thus generate rents To the extent that airport authorities accept the City legislated taxi fare as given15 a change to an open system would attract more taxicabs to HIA and the queue of taxicabs would further lengthen increasing the amount of time that drivers must wait for a fare

yenoram Barzel (1974) in his study of rationing goods by waiting emphasizes that the major disadvantage of this rationing technique is that it dissipates rent consumers would gain from consuming the product being distributed 16 The case for producers is symmetrical If firms gain access to customers by standshying in line the rents which would accrue to producers from providing the servshyice would be dissipated In this case state regulation of the queueing process at HIA (Le restricting the lenght of the taxi queue) could prevent rents from being dissipated Furthermore the State could extract all or part of the rent through the assessment of fees to finance airport services The present exclushysive contract gives SIDA full incentives to eliminate potential rent dissipation caused by too many taxis waiting in the single file queue by limiting membershyship in the organization 17

While there are other taxi arrangements that airport authorities could adopt (ie charging tolls and issuing permits) that could both prevent rent dissipation and to generate revenues an exclusive contract is less costly for airport authorities to administer If a customer alleges that the wait for a taxi was too long the airport administrators knows which taxi company was responsible Problems associated with quality standards and service regulations can be similarly handled by negotiations with a single party Airports with open sysshytems have received complaints about unruly taxi drivers competing for cusshytomers business To maintain its reputation a taxi company with an exclusive contract will design and enforce work rules to limit intrafirm competition Moreover since ensuring 24-hour service is important to tourists who comprise most of the ridership SIDA can make arrangements with certain drivers to work the airport during specific hours of the day In the absence of an exclushysive contract the airport regulators must design and administer a set of work rules

These arguments played a major role in HIAs decision to adopt an exclusive arrangement at HIA It was partly based on an earlier unsatisfactory exshyperience with open systems at four of the states airports located on the Hawaishyian Islands of Maui Kauai and Hawaii As Mr Owen Miyamoto Chief of the States Airports Division noted

With taxicabs completely free to come and go here was no way to assure service for arriving passengers early in the morning or late at night Passhysengers were forced to wait for long periods stranded miles from their destishy

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 14: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

158

nations Unruly aggressive taxi drivers were another problem at Kahului [the Maui airport] As a result the State has chosen to use a single taxicab company at each of those Neighbor Islands (Witness Statement Charleys Taxi and Radio Dispatch v SIDA of Hawaii Inc et al P 5)

Our analysis suggests that in choosing a specific contract one cannot ignore the transactions costs associated with negotiating and enforcing alternative contracts The costs of controlling unruly drivers ensuring 24-hour service and collecting a toll or fee from taxi drivers cannot simply be dismissed as economists have traditionally done Our analysis of the exclusive taxi contract at HIA suggests that exclusive taxi service may be an efficient method for the State to extract rents generated by airport taxi service to finance airport servshyices and to guarantee 24-hour airport taxi service

7 Conclusion

Economic analysis of airport taxi service regulation has been seriously neglectshyed In this paper we evaluated the exclusive airport taxi service at Honolulu International Airport as a case study Conventional wisdom suggests that airshyport taxi service provided under exclusive contract is socially inefficient While this was observed to be true at the DallasFort Worth Airport we suggest that it was due to the particularly restrictive features of that contract wich produced excess capacity and high prices to consumers In the case of Honolulu where the terms were less restrictive our analysis indicates that exclusive taxi service provides high quality service reasonable prices and revenues to finance airport services One negative consequence of the contract at HIA is the deadheading attributable to the contract The precise amount of the economic loss associatshyed with deadheading attributable to the contract is indeterminate We suggest however that the amount of deadheading that could be reduced in an open system would be substantially less in Honolulu than in Dallas in part because the airport taxi contract at HIA is less restrictive (Le it imposes only one-way deadheading rather than two-way deadheading as was the case in DallasFort Worth) in addition exclusive hotel stands in Honolulu will continue to force a substantial amount of deadheading even if an open system were adopted at HIA

While we are unable to state definitively that exclusive airport taxi service at HIA is superior to other systems we can conclude from our analysis that the present system at HIA is not as inefficient as one is led to believe based strictly on an analysis of the exclusive taxi service at the DallasFort Worth Airport It is not the exclusivity but rather the terms of the contract and the special circumstances specific to each market that determines which system is best for a particular market

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 15: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

159

Acknowledgements

We are indebted to Dean Worcester Torben Andersen and two anonymous referees for helpful comments

Notes

1 The information on the types of taxi service arrangements in use at US airports was obshytained by a survey of the top 20 airports Replies were rceived from all of them Clearly one negashytive feature of the SIDA contract is that it was concluded via negotiation rather than by competishytive bidding The long taxi queues at HIA suggests that not all the potential rents have been extracted by the State Among the four other airports (mentioned above) that have exclusive taxi service Dulles and Pittsburgh used the competitive bidding process while Detroit and Houston relied on negotiation

2 DallasFort Worth Airport continues to have one exclusive taxi company (Surtran System) However any taxi that desires to operate on the airport may join the company for a fee

3 The City of Houston opened Houston International Airport in June of 1969 The airport is located approximately 18 miles north of downtown Houston According to airport officials an experiment with an open system during the first six months of operation provided insufficient number of taxis at the airport to meet the demand of deplaning passengers Unless a taxi delivered a passenger to the airport and stayed for a returning fare no taxis were available In January 1970 the City Council authorized a concession agreement with the Yellow Cab Co to provide exclushysive taxi service at the airport The agreement allowed the Yellow Cab Co to subcontract with othshyer taxi companies to provide airport taxi service

4 According to Mr Dexter Davis airport manager at Dulles International the exclusive system was selected because there was insufficient business at DuIles to lure cabdrivers to the airport inshydependently (The Washington Post Thesday January 10 1984) In 1978 Dulles had 26000 flight departures compared to 130000 for Washington National (Urban Consortium for Thchnology Inshyitiatives 1980 p 8) Distance from the central business district could be another and often overshylooked factor as Dulles is 26 miles and 45 minutes drive from Washington DC while National is located only 47 miles and 17 minutes drive from the CBD Complaints against open systems appear to be common at airports located far from populationurban centers

5 Both Houston and Honolulu have recently survived court tests 6 Data obtained from the Airports Division State of Hawaii Department of Transportation 7 A random sample of 98 SIDA drivers out of a total of 405 was asked to keep diaries of their

activities during two days- -Saturday August 27 1983 and Thesday August 30 1983 These days are the weekly peak and the off-peak passenger arrival days at the HIA respectively Fifty-seven usable returns were returned for August 27 (20 did not work that day) and 57 for August 30 (16 did not work that day) A detailed summary of the results may be obtained from the authors by request

8 Before 1979 therewas no limitation on the number of taxis permitted to operate in Honolushylu Between 1979 and 1982 the City Council imposed a ceiling of 1250 taxis The limitation was removed in 1982

9 On October 9 -10 1984 we conducted a survey of taxi queue lenghts at HIA during the late night and early morning hours During these periods only international flights arrive at HIA with relatively few deplaning the passengers as large numbers of passengers are in transit either to US westcoast or AsiaPacific destinations Taxi counts were taken between II pm and 2 am on Ocshytober 9-10 and from 445 am to 730 am on October 10 No shuttle bus or car rental services

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 16: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

160

were available during those hours We found that between II pm and 2 am there were on avershyage 16 taxis waiting in the main queue The queue varied in length from II to 22 taxis Between 445 am and 730 am the taxi queue length varied between II and 21 taxis At no time during

either period did a deplaning passenger have to wait to obtain taxi service 10 They could well be earning less than the Federal minimum wage (See Miklius and Mak

1983) II Hawaii Visitors Bureau Annual Research Report 1982

12 Stigler (1961) 213 - 25 13 The count was made by SMS Inc (Honolulu) on September 22 1983 between the hours

of 600 am and 600 pm

14 See note 7 15 This rules out for Honolulu the suggestion by Frankena and Pautler (1984 p 124) that airshy

port authorities could unilaterally reduce fare ceilings for aiport taxi service only

16 See also Cheung (1974) 17 We cannot rule out the possibility that SIDA drivers earn some rent over the life of the conshy

tract This caveat stems from the states failure to raise concession fees over a ten year period

(1972 1982) that was characterized by unprecendented rates of inflation

References

Barzel Yoram 1974 A theory of rationing by waiting The Journal of Law and Economics 17 73 -95

Cheung Steven NS 1974 A theory of price control The Journal of Law and Economics 17

53 -71 DeVany Arthur S 1977 Alternative ground transportation systems for DallasFort Worth Airshy

port Texas AampM University mimeo Eckert Ross D 1973 On the incentives of regulators The case of taxicabs Public Choice 14

83-89 Foerster James F amp G Gilbert 1979 Taxicab regulation Economic consequences and regulatoshy

ry choices Transporation 8 371 - 387 Forstall Keith amp Amy L Wexler 1980 Regulation and Management of Taxicab Operations at

US Airports mimeo Frankena Mark amp P Pautler 1984 An Economic Analysis of Taxicab Regulation Washington

DC Bureau of Economics Federal Trade Commission Gelb Pat M 1980 Overview of taxicab regulatory revisions and preliminary responses four

care studies in Taxi Cab Innovations Services and Regulations Proceedings of the National Conshyference on Taxi Cab Innovations May 5 -6 1980 Urban Mass Transportation Administration US Dept of Transportation Washington DC

Gelb Pat M 1983 Effects of Taxi Regulatory Revision in Seattle Washington Final Report Urban Mass Transit Administration US Dept of Transportation Washington DC

Hawaii Visitors Bureau 1982 Annual Research Report Honolulu

Kirby Ronald F 1981 Innovations in the regulation and operation of taxicabs Transporation 10 61-86

Miklius Walter amp James Mak 1983 Economic Analysis of the Exclusive SIDAState Contract

to Solicit Taxicab Services from the Honolulu International Airport Honolulu University of Hashywaii

Miyamoto Owen 1983 Witness Statement in Charleys Radio Dispatch Corporation v SIDA of Hawaii Inc et aI case not yet reported

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48

Page 17: Airport taxi service regulation: An analysis of an ...socialsciences.people.hawaii.edu/publications_lib/Airport.Taxi... · Airport taxi service regulation: An analysis of an exclusive

161

PRC Voorhees Inc 1983 Honolulu International Airport Roadway and Parking Study Report Prepared for Airport Division Dept of Transportation State of Hawaii

Schroeter John R 1983 A Model of Taxi Service Under Fare Structure and Fleet Size Regulashytions The Bell Journal of Economics 14 81 96

Stigler George 1961 The Economics of Information Journal of Political Economy 69 213-25

Urban Consortium for Technology Initiatives 1980 Airport Access Washington DC Public Technology Inc

Zerbe Jr Ro 1983 Seattle taxis Deregulation hits a pothole Regulation NovDec 1983 43 -48