It there a life after Malév? A challenge for transport economists

Let’s imagine the following picture. Near our beautiful, charming city a well organized, well staffed, well equipped high quality airport is working. Citizens like it as well as trading companies. People can reach the airport easily and quickly with low cost, airport crew is always smiling so people like to travel. That means active airport activity through high demand. Because of these tendencies the environment for airlines is favourable, airport attracts them. The result will be more airlines who compete which drives the prices down and led to better services or simply larger airport capacity. The process makes the airways even more attractive to businessmen, companies and turists. The whole thing ends up like a city with more exporting and importing companies more employees who can share their ideas and get ideas from abroad so economic prosperity begins.

That story about circular causation tells us spillover effects are in the table not appear directly in the profit of the airport since the process has advantages to the broader economy. As we see the airport doesn’t have the right amount of incentives to stimute airtraffic, state should play a role. The main question is simple: HOW? Some possible answers follow.

State owned airline

A case strongly related to Malév. Maintaining a state owned airline for create those spillover effects has advantages. Focus on the disadvantages! This is prohibited by the EU law because of this action’s countercompetitive impacts. In the past that plan is worked, see figure, which shows how decrease airport traffic in short run after Malév went bankrupt. In the short run Budapest Airport (BA) has difficulties to fill the gap that Malév made but in the long run the absence of Malév may push down traffic intensity. In reality set up a sate owned airline is not a possibility.

Ruin down alternatives

With the MÁV’s recently launched new train line Schwechat, the largest airport of the region, can be reached in four hours. No question this causes pain to BA, so to stimulate it’s airtraffic the MÁV project should be stopped. Not suprise the BA lobby raised their voice against the issue.

Is to stop MÁV trains travelling to Schwechat useful? Yes it is useful for BA. Is it useful for the citizens? I have doubts. Supporting the airport is not equals with supporting the country. If people travel to Schwechat to take their plane there rather than to travel from Ferihegy this will deliver the evidence that MÁV project is useful for citizens. In very short run stopping that railway line can be useful if BA is on the edge of collapse, but in other cases it is not a good idea.

Reach the airport easier

There is a plan to build a fast train line from Keleti railway station to Ferihegy. State currently having the negotiations with the chinese constructor. May the investment doesn’t pay off but again think to spillover effects! If Hungary supports the project in a clever way it can have positive overall effects.

Develop airport services

A lot of people complaining about the rudeness of airport workers, about the lack of organisation in Ferihegy (for example airport buses) and about flights that are usually late. What about provide incentives to solve these problems? Or airport can introduce some yummy campaign based on the peolple’s psychological factors to attract them. The airplane museum next to terminal 2 is a good step.

Cope with transit

Pass through passengers and cargo should be served. Some experts say low cost airlines are not able to handle the transit traffic. What can we do? This question is not clear and need some consideration.

Is developing air traffic harm other means of transport? Which are the alternetives of air travel? Since air transport don’t have real alternative the stimulation effects economy and not just damages others. 

What do you think, attractive air travelling causes bustling business life or vica versa? How do you think state should stimulate the airtraffic? Do you have ideas? Share with us in comment below!

Dávid Réfi

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Consumer dissatisfaction with Hungarian railways

It was 6 AM when I got on the train in a town called Cegléd, about 70 km from Budapest, the capital of Hungary. It was a cold morning in mid-January, so I was glad that the train arrived only 5 minutes late. The wagon was dimly lit, and without the sun it was hard to find my way to an empty seat, even though there were plenty of them. I did not bother with the cold on the train and quickly fell asleep.

When I woke up, the train stopped in a station and people were swarming into the wagon. It was overwhelmed in a second, full with the noise and odor of the early morning commuters, heading Budapest. Most of them were young adults and pupils. The vapor and thickness of the carriage was hard to bear. The wagon was way too small for all us, but it seemed that it was just the everyday routine, as I haven’t heard any complaints about the situation.

The delay, the cold, the lack of proper lights, the odor, the noise and all the other inconveniences were just regular for the notorious Hungarian railway company, the MÁV, which affects the everyday life of at least 700 thousand commuters around Budapest.

According to a study by Eboli & Mazzula (2010), there are ten crucial characteristics of a rail service that determines passenger satisfaction:

•             Timetable: frequency and travel time

•             Reliability: trains on time

•             Completeness: number of stops, station accessibility, etc.

•             Information: time table and price information

•             Comfort: journey experience, odor, noise

•             Cleanliness: both train and station

•             Safety: against accidents

•             Safety: of private property

•             Price

•             Other: environmental protection, etc.

I decided to create my own consumer satisfaction survey on the commuters’ preferences living in the outskirts of Budapest. The question that I wanted to answer was the following: „How could the MÁV enhance its consumers’ satisfaction effectively?”

In March 2012, I have created a survey and sent it to the most famous MÁV blog (mav.blog.hu) , and posted it on the Facebook wall of the largest commuters’ towns near Budapest. Answerers had to show their preferences on a five-point scale. It worked reasonably well, as I have been able to reach 300 answerers, and half of them were real everyday commuters. The results are quite interesting.

There seems to be only a small difference between the views’ of commuters and rare-users. Commuters use train services everyday, and their most important needs are to get into town quickly, reliably and cheaply. Most of them are living on the outskirts of Budapest, getting up everyday early to arrive to work before 8 or 9 am, and travel home in the afternoon. They chose to buy a cheaper and greener house, but in turn they have to commute everyday, that consumes time and money.

In my sample, most of the rare-users travel only occasionaly, but several times a year. We may imagine them living in Budapest, but they regularly take the train to visit relatives or to go on holidays.

So, How could the MÁV enhance its consumers’ satisfaction effectively? – Results

Travel time, punctuality and cleanliness. By far these are the three most important factors that affect the whole sample. It is interesting that for the commuters, top3 are travel time, punctuality and the price of the journey. We can see that cleanliness of the train is not as important for them as the price of the service. An other, not surprising difference is that the frequency of the service is only important for the commuters. The most unimportant factor was environmental protection.

It is not enough to see how satisfied people are with a certain aspect of the service. The most important factor is how they feel about the importance of this aspect. I have also asked on a five-point scale how important they find these aspects, and I created the „relative dissatisfaction” of the most important factors. It shows how dissatisfied the answerers are, according to the factor’s importance (the larger the number, the more dissatisfied).

I have also performed some more advanced methods to enhance precision. These results show that if the MÁV would be able to increase the average answerer’s travel time satisfaction with 10%, the average overall consumer satisfaction could increase with 3,7%. Punctuality could have 3,5%, price of the journey 2,5% and cleanliness 2%. We can see that all of these improvements have small effects on the overall satisfaction of consumers.

A possible improvement could be the broader use of new suburban trains, like the FLIRT electric regional train (on the photo). On those lines where these new models are running, the average passenger is significantly more satisfied, both with the overall performance of MÁV and the comfort of the journey.

How could the MÁV enhance its consumers’ satisfaction effectively? – what could the MÁV do?

Travel time and punctuality are strongly related to the quality of the rail network. Experts on this topic also stressed out that the most important improvement would be the modernisation of the network, taking into consideration the 21th century needs of a commuter. That takes a lot of time, money and effort; therefore, at best this process would yield results after long years.

But comfort and cleanliness are easier and cheaper to achieve with a new, more effective cleaning company. The frequency of the trains could be enhanced by new, well-organised time tables. For that, the attitude of this state-owned company has to be changed.

Csaba Gábor Pogonyi

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The story of Liverpool

Beatles, Everton FC, Lusitania and River Mersey; they are all hallmarks of Liverpool and made it once famous. But the question is whether or not Liverpool connects to and fits into the world of new economic geography and if so, then how. Furthermore, can Liverpool be one of the famous textbook examples of agglomeration forces and trade like Chicago? Concerning these questions, I will do my best to show that the story of Liverpool is far more intriguing than one thinks at first and it is worth to be taught since it has strong links to theory.

Once upon a time, the place of Liverpool was a muddy, fishermen’s village, until all of a sudden King John decided to make a new borough with a new port on it to trade with Ireland. The port was a kind of agglomeration force; a couple of settlers arrived and settled down. Thus the village grew but after some time it reached a steady state and stayed unimportant compared to the nearby centre, Chester. The economy has been in a stable equilibrium for centuries with a population around 1000 people.

Then an accident happened again, the location of Liverpool became more valuable when trade evolved with the 13 British Colonies of America. To preserve this preciousness the first commercial wet port was built here, which allowed the ships to be unloaded and uploaded anytime of the day regardless of the tide. Of course, this invention attracted more and more ships, which is a good example of cumulative causation: the wet port was established in Liverpool because there were many ships as a result of trade with the colonies and more and more ships arrived to Liverpool because the wet port was there. Later, a large amount of profit was realised by the local merchants due to slave trade in the 18^th century. The slave trade line was in fact a triangle connecting Liverpool, Africa, and America. In spite of its success, the business with the colonies was suddenly terminated when the American War of Independence broke out. Interestingly, this shock – that is losing one of the most important trade partners – could have led to the end of the golden days of the city, yet, it did not happen. Liverpool also kept its major position even when the slave trade was abolished, as the trade of tobacco, cotton, sugar, and other goods easily substituted it.

Steam ships were invented in the 19^th century and eventually became common on the seas. The docks of Liverpool – since they were not deep enough – were not appropriate for these ships. In answer to this, the city quickly overcame the technological shock by establishing new ports to be able to serve steam ships. From this time on, hundreds of people travelled to North America from Ireland and Eastern Europe via Liverpool, which was at this time the second largest port in the country.

In the First World War Liverpool docks were very busy building ships, and the city itself was still very vivid. In contrast, between the two world wars, world trade declined and so did Liverpool. A few years later, in the Second World War, the location of the city became favourable again: troops, food and weapons arrived from the USA to Liverpool. Unfortunately, its importance made the city a major target of the German air force, which bombed it several times.

After the war, Liverpool never recovered. Containerisation was then the new wave in shipping and there was not any dock where these containerships could port until the 1970s so the city soon found itself on the margin. Furthermore, United Kingdom enhanced trade with the European Union, joining it in 1973, thus ports on the Southern and Eastern coast of the country benefitted, and for the first time, Liverpool was on the wrong side of the country. The companies, once located near Liverpool moved closer to the centre of the EU thus the agglomeration force in the city declined. Since that time, the economy of Liverpool reached an equilibrium again, but at a lower level, with a population of 435 000 people.

Focusing on the future: will the story be a fairytale? Certainly, nothing can be declared, but the Objective One Merseyside program of the European Union between 1994 and 2008 probably enforced the agglomeration forces of the city with its projects. Moreover, a new container dock is planned for extra huge containerships. However, it is still doubtful whether these projects can offset the handicap of being far from most of the EU members.

To give you an overview of the last centuries, here states a graph of the population of Liverpool.

Source: Liverpool Core Strategy Preferred Options 2010

All in all, location matters. What seemed to be a perfect position for centuries can become a disadvantage after all, due to some accidents of history, just as in the case of Liverpool. Some events do not even have an effect, but some affect the economy very intensively and move it to a new equilibrium. And if the agglomeration forces deteriorate, the size of the particular city will decrease. Good luck, Liverpool.

Andrea Kiss

Resources:

Lambert, T. (2012). A Brief History of Liverpool.

ScouseTimes (2011, February 13). Special Lost Dock ofLiverpool

LiverpoolCore Strategy Preferred Options 2010. (n.d.) p. 32.

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Trans-Siberian Railway: Voice of Siberia

by Ekaterina Serikova

Do you know where Siberia is located? Some Europeans feel that it is just “too far”. I would not exaggerate by saying that even Russians do not always know exactly where this region is located, assuming the periphery of it. However, it would have been even worse  if  in  the  20th   century  the  general  governor  of  Eastern  Siberia  N.  Muravyov- Amurskly did not start to build Great Siberian Way that connected central Russia with Siberia. This railway had significant influences on many areas’ development where it was built, while analyzing its impact on the development of Siberian region is of particular interest. The goal is to show how government  infrastructure projects can give live to economy of a particular region, entailing certain extent of policy selectivity and a matter of history.

The  project  heavily  affected  the  Siberian  region  in  several  aspects:  industry development, trade, labor mobility, foreign investments, and international relations.

Siberia was a huge and well-endowed region, having huge reserves of coal and peat, more than 50% of the whole of Russia’s forest reserves, lots of gold fields, salt, and non- metallic minerals.  Obviously, the Railway aimed to take advantage of these industries, which caused their rapid development. For  example, the changes in gold industry was caused not only by increased gold extraction, but also by structural changes, such as the switch from manufactures to modern factories as well as technical renewing due to easier transporting of necessary inventory and hardware. Thus, despite the Russian-Japanese war, average yearly gold extraction in 1901-1910 was 2289 poods1, which is 127% higher than during the last decade of the 19 century2.  Since the railway needed fuel, coal industry advanced a lot: by 1910 coal extraction already constituted 7% of total Russian coal extraction. Being mostly developed as “servicing” industry for the railway, coal industry growth also improved technological progress in other industries, switching them away  from  firewood   usage.  Other  industries  mentioned  above  were  also  raised significantly: salt, wood, and butter was exported heavily.

Obviously, such intensive industrial growth attracted huge capital inflow in the region. By 1912 a large net of trade places was already created: 60,000 retail shops, total trade in the Siberian part of the railway increased more than in 4 times in 1900-1913.

The Railway also led to the movement of labor to the cities located along the way, which can be explained  by people’s expectations of higher wage and access to larger market. Consequently, the cultivation area was extended together with agriculture growth and increased specialization. 80% of all imports of agricultural machinery in Russia were sent to Siberia because there were huge amount of unused land and lots of labor that came  because  of  the  Railway.  Later,  these  places  became  the  largest  and  the  most developed  Siberian  cities  with  the  highest  land  rent  –  Novosibirsk,  Irkutsk,  Omsk, Krasnoyarsk, which are still fundamentally important  Siberian cities. The creation of large cities and movement of labor into them, however, caused demise of  previously popular trade places, such as the Irbit fair that stayed more than 100km away from the Railway.

However, the overall impact of the railway was not as positive as it seems to be: many economists claim that the Great Siberian Way was the cause of making Siberia a “raw materials adjunct” for the whole of  Russia. As we can observe, development of local industries was not symmetric, it mostly favored industries  that  were connected closely with the needs of the railway. For example, metallurgy died as fast as it was raised  due to railway needs: smelting cast ironing was 540,000 poods in 1895 versus 150,000 poods in 19082.

Beside  this,  relations  between  Russia  and  China  began  to  develop  sharply: merchants from Siberia moved to China as well as a huge number of swindlers flowed into Siberia being attracted by high  profits. The rise of local and international trade caused progress in banking sector: by 1912 there were  already  106 bank offices in Siberia. However, they were mostly involved in trading finance instead of local heavy industry financing.

Being started from a local project connecting central Russia with Siberia, now Trans-Siberian Railroad is the largest international railway in the world that connects Far East with Western Europe, reaching 5,867 miles in length. For the country, it is also the source  of  income  which  has  increased  throughout  the  time  together  with  increased international trade and railway’s capacity. After 100 years of existence, this Railroad can still offer perspective alternatives for the future: there is a plan of prolonging the Railway to Sakhalin Island over the Nailski Strait, which will connect Eurasia with Sakhalin3.

Trans-Siberian Railway demonstrates a dramatic support of successful government interventions  in  economic  life  and  regional  development.  Despite  policy  selectivity favoring some particular places  (cities  along the railway), such interventions can be vitally essential for initial economic development of far regions.

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