The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers

This paper examines the recent developments of China’s aviation polices focusing on airline consolidation, the opening up of the domestic aviation market, and the adoption of more liberal international aviation policy. It then goes onto assess the impacts of the above policies on the industry structure, the performance of major airlines, and the competitiveness of Chinese airlines in international markets. The study shows that the industry became more competitive following the opening up of the domestic aviation market. Although major airlines saw an increase in passenger volume and an improvement in load factors, the falling yield and rising costs make them difficult to grow profitably. Moreover, Chinese airlines largely failed to capitalise on building an international network and the majors were weak in international competition. Strategic use of aviation policy to build a strong and profitable airline industry is still a formidable task lying ahead for policymakers.     

Airline ownership and control: A corporate governance perspective

Most countries require substantial domestic equity ownership of designated national airlines, yet changes in international capital markets have significantly altered the way control rights associated with equity are exercised. We argue that in a context of aviation deregulation and liberalization, a new generation of aviation financiers has appeared whose incentives and competence for control diminishes the relevance of the nationality provisions contained in most bilateral agreements. The paper describes recent developments in ownership and control and its impact on airline management.     

Benchmarking the performance of Chinese airlines: An investigation of productivity,yield and cost competitiveness

In the past decade, the Chinese airline industry experienced extraordinary growth in size and profitability. However, no quantitative study has investigated the performance of Chinese airlines in terms of productivity and cost competitiveness. This study investigates the leading Chinese airlines' productivity, yield, cost competitiveness and input prices, and benchmarks them against major airlines around the world. It finds that Chinese airlines' productivity has improved significantly in the past decade but still lags behind that of industry leaders. Chinese carriers enjoyed high yields and low input prices in the domestic market, which led to high profitability in recent years. However, their cost advantage has been diminishing. To sustain long-term growth, Chinese airlines need to adopt the industry's best practices in a timely manner. Both the aviation markets and input markets in China should be further liberalized.     

The effect of aviation responses to the control of imported COVID-19 cases

The outbreak of the COVID-19 pandemic has a lasting and unprecedented negative impact on the global aviation industry. While countries such as China have successfully curbed the domestic outbreak of the virus with various restrictive and preventive measures, the challenge of avoiding imported cases remains. More importantly, it is still unclear to what extent these implemented aviation emergency responses have effectively mitigated the transmission risk of the virus. This paper provides an empirical assessment of aviation responses to the control of imported COVID-19 cases, with a focus on the following three strategies: the “circuit breaker” policy, the “negative Nucleic Acid testing (NAT)”, and the “double negative tests” requirement. Non-recursive structural equation models (SEM) with latent variables were applied to detailed international flight data and individual epidemic survey data of Guangzhou, China, between May 1 and November 30, 2020. The results show that the “double negative tests” measure has a positive effect on eliminating the number of SARS-CoV-2 carriers, while the effects of single “circuit breaker” and its co-intervention with “negative NAT” are conterproductive. This study provides important implications to civil aviation agencies in regard to medium and long-term risk control of imported cases. Specifically, although the circuit breaker mechanism was designed to target on the risk control of imported COVID-19 cases, it may be more effective to carefully maintain a timely and reliable pre-boarding screening and testing to curb the number of imported cases.     

An analysis of the greenhouse gas emissions profile of airlines flying the Australian international market

International commercial flights (with the exception of flights between countries in European Union including Iceland, Norway and Liechtenstein) are currently not subject to greenhouse gas emission reduction regulation. To formulate effective and efficiency policy to manage greenhouse gas emissions from air transport, policy makers need to determine the emissions profiles of all airlines currently flying into their country or region. In this paper, we use 2012 data on airlines' aircraft characteristics, passenger load and cargo load (obtained from statistics reported by Australian Government Bureau of Infrastructure, Transport and Regional Economics) to estimate the volume and carbon efficiency on each international route flying to and from Australia. This is the first study to use actual passenger and cargo load data to determine the greenhouse gas (specifically CO₂) efficiency of airlines operating in the Australian international aviation market. Airlines' CO₂ emission profile is dependent on many factors including but not limited to the aircraft used, payload, route taken, weather conditions. Our results reveal that the airlines’ CO₂ emission profile is not only dependent on the aircraft used and the number of passengers but also the amount of cargo on each flight.     

US open skies agreements and unlevel playing fields

We examine the relationship between ‘Open Skies’ agreements (OSAs) signed between the USA and various countries or regions and the existence of subsidies and other forms of protection that advantage one nation's airlines over those of co-signatories to an OSA. We argue that under an oligopoly market structure, strategic competition brought about by OSAs creates incentives to subsidize and/or protect domestic airlines. Such incentives are maintained or amplified by political lobbying efforts that bias civil aviation policies towards producer interests over wider measures of economic welfare. We report on financial aid and policies which have advantaged US airlines during the OSA period and which suggest that unlevel playing fields have been made more unlevel during the era of OSAs.     

Liberalization of China–US air transport market: Assessing the impacts of the 2004 and 2007 protocols

This paper examines China's considerations in reaching the 2004 and 2007 Air Service Agreement Protocols with the United States (US) and the impacts of such policy on the China–US market from the perspective of China. Analysis shows that the 2004 and 2007 protocols have profound impacts on the China–US market. The two protocols have been associated with phenomenal traffic growth and intensified competition. Passengers also benefit from much more choice in terms of both airlines and routing. Over time, Chinese carriers' operating performance and financial performance have gradually improved after the liberalization expressed in the protocols. However, the industry's hub-building initiatives are still seriously challenged by competing hubs in Seoul and Tokyo which have diverted substantial number of passengers moving between the China and US markets. Such issues have to be addressed in order to create a win–win outcome for both countries.     

Restructuring Argentina's airline networks: Successes and challenges

Argentina's aviation networks underwent significant restructuring after the 2015 election of President Mauricio Macri. Historically constrained by poor aviation infrastructure, economic uncertainty, currency devaluations, labor unrest, comparatively weak passenger demand, and operational barriers to low-cost carriers (LCCs), Argentina's airline networks have experienced deep restructuring in both providers and network interactions. With less than 0.3 trips per capita in Argentina, compared to 3.0 in the mature U.S. aviation market, analysts argue that there is significant potential for moving bus and automobile travelers to airlines, and to expanding Argentina's airline connectivity profitably throughout the region. LCCs such as Flybondi, Norwegian, Air Europa, Sky, JetSmart, and others are challenging long-standing transportation relationships in the region and developing new routes for consumers. A set of interlinked questions aims to understand Argentina's changing aviation geography. Comparing O-D data from 1972, 1982, 1996, and 2019, the results indicate a significant reorganization of Argentinas domestic and regional network interactions, with modest adjustments to its global north-south connections. Challenges include outcomes of a recent change in Argentina's government and the long-term impact of the global COVID19 pandemic on the aviation system.     

Competition and countervailing power: Evidence from the China Eastern and Shanghai Airlines merger

This paper examines the motives and effects behind the horizontal merger between China Eastern and Shanghai Airlines in 2009. We develop testable hypotheses, incorporating into a unified framework the two merging airlines, their domestic and international competitors, and relevant airports along the supply chain. We employ an event study methodology and show that domestic competitors gain whereas international competitors lose. Our results suggest that the sources of gain for the merging firms are market power in domestic markets and efficiency improvement in international markets. Further, as a hub for the merged airline, Shanghai Airport experienced positive abnormal returns. Our results do not support the hypothesis that the merged airline gains countervailing power towards airports. Our event study findings are robust to alternative estimation periods and samples, and are consistent with analyst forecasts and long-run operating performances.     

COVID-19 pandemic and prospects for recovery of the global aviation industry

The COVID-19 pandemic ushered a wave of economic decline across the world due to disruptions in the supply and demand chain for the travel market. This study examines potential recovery pathways from the global aviation industry following the severe negative impacts of the COVID-19 pandemic. Using archival and secondary data mainly from Flightradar24, ICAO, IATA and EUROCONTROL, the study found that the pandemic inflicted a heavy toll on global aviation, which resulted in ratings downgrades, liquidation and bankruptcy of several airlines and airports due to severe cash burn instigated by travel restrictions. Although the industry is opening up, the recovery process seems much slower than anticipated, which could see more jobs and airlines failing in the absence of relevant support. The study recommends that as the sector opens up, it does so in a responsible manner, which puts measures that protect travellers, reduce costs, increase efficiency, and ensure a quality customer experience anchored on employees' health and customer safety. Recovery should also occur with the view to build back better in line with the provisions of the Sendai Framework for Disaster Risk Reduction and at the same time responding to the dictates of Agenda 2030 on sustainable development goals (SDGs).     

Airline franchising in Europe: benefits and disbenefits to airlines and consumers

Franchising has become an increasingly important commercial strategy for Europe's airlines as they seek to strengthen their position in the deregulated marketplace. This paper examines the practice of airline franchising in Europe since its inauguration by British Airways in 1993 and its subsequent adoption by most of the other major carriers. The advantages and disadvantages for both franchisor and franchisee airlines are investigated, drawing upon evidence from the operation of scheduled air services in Europe. Consideration is then given to the benefits claimed for consumers and the effect of franchising on competition. A generally positive picture arises, particularly in international markets. There are however incipient signs that where franchising leads to one major carrier becoming too dominant in its domestic market, the scope for competition and new entry is becoming suppressed.     

Market opportunity analysis and evaluation of the expansion of air transport services across the Taiwan Strait

Air transport services across the Taiwan Strait are rapidly developing. Taiwanese airlines are therefore facing a critical decision as to whether to expand their scheduled services beyond saturated markets. The Taiwanese government is also concerned regarding airline operators' willingness to enter new markets for next-round negotiations concerning traffic rights. This study proposes an Analytic Hierarchy Process (AHP) framework for Taiwanese airlines based on a market opportunity analysis (MOA) to evaluate the determinants of potential service expansion. A novel rank pair-wise comparison (RPC) is used to measure the relative weights among determinants. It is found that service provision for Taiwanese merchants is the most vital factor. Flight quotas and allowed time slots also affect airlines' willingness to expand operations. Other determinants depend on the individual airlines' development background and operating size. This study also evaluates twelve airports in mainland China using grey relational analysis (GRA) to rank the entrant priorities for additional scheduled services.     

Network competition in the open aviation area

In 2008 the ‘joint open aviation area’ between the US and EU will become reality. It is expected that competition will increase. The reaction of the airlines depends on the possibility to make profits in ‘new’ markets (markets that can now be entered). This, in turn, depends on network characteristics. In this paper we find that full liberalization of international markets by means of a bilateral agreement results in higher welfare than the formation of an alliance. Carriers, however, will also in fully deregulated aviation markets most likely opt for an alliance. This is a result of a built-in competitive effect of hub–spoke networks. Only in markets where the reservation price is very high (e.g. to London Heathrow), hub–spoke airlines may enter a competitive game. Low-cost airlines, which do not operate extensive hub–spoke networks, may find it profitable to enter new markets.     

The effect of LCCs operations and scheduled services deregulation on air charter business in Japan

Recent aviation deregulation is producing structural changes within leisure industries in many parts of the world. This paper reviews the development of low cost carriers (LCCs) and assesses its effects on both of domestic and international charter markets in Japan since 2007. Furthermore, this paper analyzes the effect of scheduled services deregulation on international tourism to Japanese regional areas in relation to charter services. The results suggest that in the domestic market, LCC operations have seldom impacted charter traffic due to the differences in target markets and routes. In the international market, LCCs launched scheduled services to Japan but mainly on high demand routes. The deregulation of scheduled services led to a passenger shift from charters to newly scheduled flights and a concentration of tourist arrivals in regional centres. It also led to a decline in international tourist arrivals in some remote destinations. This paper indicates a current trend in which charter business is still an important sector in aviation and leisure markets.     

The carrier-within-a-carrier strategy: An analysis of Jetstar

The carrier-within-a-carrier (CWC)—or “airline-within-an-airline” (AWA)—approach has become an integral part of many airlines' marketing strategies in the Asia–Pacific region where several full-service national airlines operate low-cost/low-fare subsidiary airlines. The CWC approach is a response to competition from low-cost carriers based on product differentiation, i.e., a ‘two brands’ business strategy aimed at defending market share. Most CWCs were established after 2001 as a response to deregulation and liberalization and generally adhere to the principals of low-cost/low-fare carriers. Typically, CWCs enter markets through new, point-to-point services and operate short-haul routes (one-to 2-h flying times) that might have been abandoned by full-service airlines (FSAs), whereas at other times they simply compete directly with FSAs on price. This paper analyses Jetstar, a subsidiary of Qantas, which has transitioned from a domestic CWC to an international medium- and long-haul carrier. In addition to its domestic Australian operations, Jetstar operates between Australia and the Asia–Pacific region and has established partnership arrangements operating within Asia, including Jetstar Asia (based in Singapore), Jetstar Vietnam and Jetstar Japan. Jetstar also has operations in New Zealand. The theoretical framework applied in this paper is based on the strategic windows concept, in which opportunities arise and a window opens, and Tregoe and Zimmerman's (1980) ‘driving forces’ model, in which nine attributes are listed and certain of these are exemplified by Qantas' strategy. The methodology adopts a case study approach that draws upon content analysis and ‘events in the making’ and features interviews with key respondents. The findings show that Jetstar disproved earlier criticism of the CWC strategy and further demonstrate that by careful planning, strategy and execution, Jetstar has been able to grow its capacity, maintain high load factors, increase revenue and (more importantly) increase profitability at a time when many airlines are consolidating or withdrawing services because of losses.     

Commercialising a national airline—the Aer Lingus case study

National airlines dominated international aviation in Europe for almost 70 years. They also dominated policy and achieved identification of the national airline interest with the national interest in the era of protectionism. The success of Aer Lingus in achieving regulatory capture of policy making in Irish aviation from 1936 to 1986 is examined. In the present era of competition and privatisation this article examines the commercialisation of Aer Lingus, its relative decline in competition with Ryanair after deregulation in 1986, its reinvention as a low-cost carrier in 2001 and its likely privatisation at a time when most countries are discarding the national airline model.     

Integrated airline productivity performance evaluation with CO2 emissions and flight delays

This paper evaluates the airline productivity change by applying a modified global Malmquist productivity index (GMPI) model, incorporating both CO₂ emissions and flight delays. Statistical inference is also performed on the GMPI results using the bootstrapping method. Empirical research was conducted on 15 international airlines during 2011-2017. The obtained results showed that the productivity of all airlines had been fluctuating and experienced a slight increase over 2011–2017. Most of these 15 airlines made more progress in managing punctuality than CO₂ emissions. High punctuality policy may not be the best choice for all airlines when considering financial constraints, while airlines in more liberalized aviation markets are more likely to improve productivity by reducing flight delays. Efficiency change and technological change were the major driving factors for the growth of airline productivity. European and US airlines benefitted more from superior technology, while most Asian and Oceanian airlines still benefitted from the advantage of efficiency. Based on the findings, specific management advice was given.     

Spatial concentration and connectivity of international passenger traffic at Brazilian airports

This paper examines concentration and connectivity of international passenger airport traffic in Brazil. The analysis considers seat supply and scheduled flights from 1999 to 2012. The 2000–2005 period was marked by concentration and limited international flight links, which was followed by the movement to recover capacity and connectivity from 2005 to 2010. Brazil started to liberalize bilateral agreements in 2002, and eventually moved towards the “open skies” concept in 2010, facilitating the process of operational de-concentration and increasing seat supply. The Brazilian government's liberalisation policy through bilateral agreements did not spark off a significant turnaround for national airlines; rather, the revived traffic growth was led by foreign airlines. This movement brought significant changes in the composition of international passenger traffic in Brazil, although changing little in terms of concentration and connectivity. The real change was the dominance of foreign airlines and seat distribution by regions, with the Latin America and Caribbean region shrinking to less than half of the market.     

A comparative performance analysis of airline strategic alliances using data envelopment analysis

As “open skies” agreements became more common among different countries and thus began to open up international routes to further competition, the global airline industry has undergone accelerated structural changes for the last two decades. These changes include the consolidation and expansion of airline strategic alliances throughout different regions of the world. Though airline strategic alliances are generally perceived to be a major driver for enhancing the operating efficiency and the subsequent competitiveness of participating member airlines, the concrete evidence supporting such a perception is still lacking in the literature. This paper is one of few attempts to evaluate the comparative efficiency of the strategic alliances among global airlines and then assess the managerial impact of airline alliances on the airline's comparative performances.     

Frequency and aircraft size dynamics in a concentrated growth market: The case of the Chinese domestic market

Despite the explosive growth of the Chinese aviation sector and the major industry reforms undertaken in recent decades, the Chinese domestic market remains highly concentrated with a significant element of regulation and governmental control in areas such as market entry and airline fleet planning. In this study, we investigate the frequency strategies and aircraft choices of airlines operating in this concentrated growth market. Our empirical investigation suggests that airlines mainly accommodate rapid traffic growth by flying more frequently, although increased aircraft size also contributes to market expansion. We also find a negative relationship between market concentration and flight frequency. Due to the more balanced market structure resulting from mergers among leading airlines since 2002, there has been a moderate reduction in market concentration at route level, contributing to a 3.7% increase in traffic volume from 2002 to 2008. The results of our study suggest that Chinese travelers have yet to fully enjoy the benefits of market liberalization, and airports should prioritize increasing capacity related to aircraft movements over the accommodation of larger aircraft.