How airlines learn from airline accidents: An empirical study of how attributed errors and performance feedback affect learning from failure

This research examined organizational learning factors by asking whether airlines learn more from internally or externally attributed causes of airline accidents. Our dependent variable, organizational learning, was defined as a decrease in subsequent airline accident rates. To test the moderating effect of performance feedback, we predicted that performance relative to aspiration level would negatively moderate the relationship between the attribution of airline accidents and the subsequent accident rate. Overall, the findings of this research revealed that the greater the proportion of internally attributed causes is, the more likely it is that an airline will learn from its accidents and will experience a lower subsequent accident rate. In addition, our findings regarding the moderating effect of performance feedback showed that airlines performing below their aspiration levels are more likely to learn from internally attributed causes of accidents and will therefore experience a lower subsequent accident rate. We conducted this investigation by collecting data from the U.S. National Transportation Safety Board (NTSB) database for all of the accidents (accidents and incidents) experienced by U.S. commercial airlines during the 1990–2014 period. Our research findings provide implications for future studies that discuss the factors affecting organizational learning.     

Airline type and tourist expenditure: Are full service and low cost carriers converging or diverging?

Since some years ago low-cost carriers (LCCs) are becoming less and less low-cost-like, as well as full-service airlines are becoming less and less full-service-like, thus contributing to lessen the differences between users of one airline type and the other. LCCs have made air travel available to all budgets and enabled tourists to spend more at destination by reallocating their trip expenditure. The objective of this article is to observe if airline types have been converging regarding travellers’ expenditure allocation and total trip expenditure. We use repeated cross sections of the Spanish tourist expenditure survey between 2006 and 2014, and compositional data analysis with a total in order not to confound effects involving expenditure allocation with those involving expenditure volume. Results show that users of both airline types converge in their allocation of the trip budget (between transportation and at-destination expenses, and within at-destination expenses), but diverge with regard to total trip expenditure.     

Consumer willingness to pay for in-flight service and comfort levels: A choice experiment

In the competitive aviation market as a result of the emergence of low cost carriers, charter airlines have had to reconsider their approach to service provision. Specifically, the reduction in service and comfort levels offered by the low cost airlines provides charter carriers with an opportunity to differentiate their product based on the quality of the offering. To consider this strategic option we employ an on-line choice experiment to examine consumer choices with respect to the bundle of services on offer when deciding to purchase a flight. With these data we use the Bayesian methods to estimate a mixed logit specification. Our results reveal that in principle passengers are willing to pay a relatively large amount for enhanced service quality.     

Real option analysis of aircraft acquisition: A case study

This paper demonstrates that aircraft acquisition by airlines may contain a portfolio of real options (flexible strategies) embedded in the investment's life cycle, and that if airlines rely solely on the static NPV method, they are likely to underestimate the true investment value. Two real options are investigated: i) the “shutdown-restart” option (a carrier may shutdown a plane if revenues are less than costs, but restarts it if revenues are more than costs), and ii) the option to defer aircraft delivery. We quantify the values of these options in a case study of a major U.S. airline. The economic insight could help explain observed capital expenditures of airlines, and serve as a rule of thumb in evaluating capital budgeting decisions. A compound option (consisting of both the shutdown-restart and defer options) is also analyzed.     

Airline cost changes: To what extent are they passed through to the passenger?

Since the start of the Millennium airline costs have been highly volatile, mainly due to large fluctuations in jet fuel prices. An important question for airlines and regulators is whether airlines are able to pass through cost changes to their prices. Little empirical evidence on the pass-through of costs exists. In this paper, we investigate which pass-through rates are most likely. According to economic theory, the pass-through of costs depends strongly on the type of cost increase (firm-specific or sector-wide) and market conditions (monopoly, oligopoly, perfect competition). In monopolistic markets, the shape of the demand curve also matters (linear, constant elasticity, log, power function). A pass-through rate of 100% is often assumed based on the reasoning that the aviation sector is highly competitive. We analyse market concentration in all airline markets in the world, and generally find a high level of concentration. Additionally, different airlines offer different products based on a variety of factors, including service, flight frequency, legroom, bags allowed on board, flight time and transfer time. Therefore, most aviation markets can be characterised as differentiated oligopolies. As airlines choose their quantities first (flight schedules) and adapt their prices to demand (yield management), we consider the Cournot model the best choice. In such markets, firmspecific cost changes will be passed through by a rate of less than half while sector-wide cost changes are passed through by a rate of more than half. In specific situations, the pass-through rate may be different. Examples are limited airport capacity (congestion), cross-subsidization, and the extent to which there is a level playing field.     

What are passenger perspectives regarding airlines' environmental protection? An empirical investigation in Taiwan

Many airlines recognize the importance of environmental protection. The airlines implement a number of environment-friendly activities related to in-flight services and wish to trigger passengers' support and therefore inquire as to their preferences. Because these activities are not identical between airlines, it is not known which items are actually supported and which items are opposed. In this paper, major airline environmental protection activities were collated, and the Smart partial least square software was used to analyse data from 442 passengers who have experienced air travel in the past 3 years. The results showed that in general, passengers would prefer to choose airlines that supported environmental protection activities. However, several activity items would be rejected if passengers felt their rights or interests being compromised. It was also indicated that people from countries at different stages of economic development had varying preferences regarding their support of airlines' environmental protection activities, and the young generation had more concern about environmental protection than others. The findings of this research could be beneficial for airlines setting up their differentiated marketing strategies for enhancing both environmental protection efforts and business performance.     

Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models

Without sustainable competitive advantage firms have limited economic reasons to exist and will decline. Competitive advantage concerns the factors which provide competitive strength. This paper is based upon the resource-based view which considers firm resources to be heterogeneous and which believes that firms only have a small bundle of core resources irrespective of their overall performance. This research establishes the role of 36 intangible resources for 49 Asian airlines across three business models: network airlines; low-cost subsidiaries from network airlines; and low-cost carriers. It uses the VRIN framework which examines whether resources are valuable, rare, inimitable, and non-substitutable. Research participants distribute points between their chosen seven resources according to their perceived role in firm performance. Resources which meet all four requirements of VRIN are considered core competences and sources of sustained advantage. Across all 49 Asian airlines, the top-three most important resources of advantage are slots, brand, and product/service reputation. While these core resources are predictable, they have not previously been proven within the context of airlines, let alone geographically and by airline model. Results show that the core bundle of resources vary for each model, which helps to explain the difference in performance across models, and that some resources which were expected to be high-ranking, such as organisational culture and customer focus, were not.     

Does asset-light strategy contribute to the dynamic efficiency of global airlines?

This study analyses the effect of asset-light strategy on the dynamic efficiency of global airlines from 2008 to 2013. First, a dynamic data envelopment analysis is employed to estimate the dynamic efficiency of global airlines. Second, the degree of asset-lightness is computed by combining the concepts of the DuPont equation and financial ratios. Third, a multivariate analysis is performed to analyze the association between asset-light strategy and dynamic efficiency. The findings show that asset-light strategy significantly enables global airlines to have better corporate performance. Overall, this study suggests that global airlines should efficiently manage and allocate their light resources to sustain challenges in the dynamic global airline industry.     

Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs

This paper provides the results of an econometric analysis of the influences of airline characteristics on the average operating costs per aircraft movement. The analysis combines a comprehensive selection of airline-output variables, airline-fleet variables, and airline-market variables. The results confirm the existence of economies of density, economies of load factor, economies of aircraft utilisation and economies of aircraft size. The paper does not provide evidence of economies of scale, economies of stage length or economies of fleet commonality. Furthermore, airlines that additionally operate full freighters, airlines that are members of a worldwide alliance and airlines that operate a multi-hub system face higher average operating costs per aircraft movement. Surprisingly, the regression results demonstrate that airlines that use newer aircraft have higher average operating costs per aircraft movement, suggesting that ownership costs (depreciation and leasing costs) of new aircraft outweigh the increasing maintenance costs of old aircraft. Finally, the results show that airlines that have a dominant position at their hubs or bases have higher operating costs per aircraft movement, implying that the absence of serious competitive pressure enables airlines to charge higher ticket prices and, with that, leads to a limited focus on cost savings.     

Cost and revenue synergies in airline mergers – Examining geographical differences

Deregulation, privatization and shifting demand patterns in the airline industry, combined with the emergence of low-cost airlines and rising fuel prices have increased the competitive pressure on legacy airlines. Since alliances do not deliver sufficient benefits to counterbalance these trends, many airlines have engaged in mergers to seek for additional cost and revenue synergies. An extent body of literature investigates the synergy potential in mergers and alliances, but there is no study on how synergies differ among mergers and what potential influence factors cause these differences. This paper aims at explaining differences in synergy estimates and realized synergies in recent airline mergers and places a special focus on geographical influence factors.The research methodology uses a comparative case study comprising six large airline mergers between 2003 and 2012 from Europe, North America and Latin America. After analyzing the cases individually, the pre-merger situation of the merging airlines, the synergy estimates and the realized synergies of the cases were compared.The results show considerable geographical differences in pre-merger cost structures, synergy estimates, and synergy realization. The European mergers present lower synergy estimates but also lower integration costs than mergers in the Americas. Whereas European airlines estimate cost synergies higher than revenue synergies, both North and Latin American airlines expect more revenue synergies than cost synergies from airline mergers. Only one merger showed superior post-merger profitability which indicates that the achieved synergies in the broad majority of the cases are insignificant.     

Productivity efficiency analysis of the airlines in China after deregulation

Using data envelopment analysis and the Malmquist productivity index, this paper studies productivity efficiency of various airlines in China after the Chinese government deregulated the aviation industry in 2005. The results show that the productivity efficiency of non-state-owned airlines improves rapidly and eventually exceeds state-owned airlines after the deregulation policy. Among the state-owned airlines, the productivity of the local airlines and their technical changes are better than those of the central airlines.     

Network industries in collision: aviation infrastructure capacity,financing and the exposure to traffic declines

This paper discusses how various aviation infrastructure service providers have dealt with the fall off in airline traffic following the terrorist attacks in the US on September 11th. It shows that these organizations have relatively high fixed costs and low incremental costs for providing services. As such, small changes in traffic have large impacts on revenue because revenues are generally proportional to activity. However, because of the high component of common and fixed costs, airport and ATS provider costs do not change in proportion to activity. When traffic declines, revenue shortfalls can arise because most airport and ATC systems operate on a simple cost recovery basis. The responses to the events of September 11th have also caused substantial increases in security costs. To the extent these costs are passed forward to system users, they will increase the price of travel and impact patronage further. Airlines also have substantial fixed capacity costs. The declines in traffic are often felt as an erosion of yields and fares as carriers seek to maintain traffic loads for the capacity they are going to operate. In general, the ability to pass along cost increases from providers to airlines or from airlines to passengers depends on relative supply and demand elasticities. Because infrastructure provision is often a monopoly, and the demand for airline services is price elastic, we suggest that most of the cost increases will be borne by the airlines. We also suggest that short-haul flights will be most severely impacted because the fees and taxes are a larger proportion of the fare for these flights. We also examine the extent to which additional infrastructure costs imposed on operators may exacerbate the downturn in their traffic.     

Eco-positioning of airlines: Perception versus actual performance

To date there has been little research in air transport into the eco-positioning of airlines, that is, their environmental image relative to other airlines and how actual environmental performance relates to this eco-positioning. This paper identifies the environmental perceptions that passengers hold of twelve airlines and relates these perceptions to airlines' actual environmental performance, using load factors, aircraft age and the atmosfair Airline index as proxies for environmental performance. Based on a survey of over 600 passengers at Liverpool John Lennon Airport, the research analyses air travellers' perception of airlines from an environmental perspective. The results show that while there are significant differences in people's environmental perception of airlines, the eco-positioning of the airlines is not correlated to their actual environmental performance. The results support previous research findings in other industries that in many cases actual performance is less important than communicating environmental messages to the public in creating a superior eco-positioning.     

Chapter 11 and the level playing field: Should chapter 11 be considered as a subsidy?

This paper assesses whether Chapter 11 is a form of subsidy for US airlines. US airlines have used Chapter 11 to restructure their operations. This has been criticized as a subsidy by major non US airlines and governments for a long time and recently, in the “level playing field” debate. Applying legal and economic perspectives of subsidy, we examine the different opportunities of Chapter 11 to reduce airlines’ costs. It is argued that most of the forms available, such as the modification of collective bargaining, do not constitute a subsidy. Only the termination of pension plans might involve a subsidy, but only using a legal definition of doubtful relevance since there is normally no use of public funds.     

Assessing the air cargo business models of combination airlines

Notwithstanding the fact that the air cargo business is generally a secondary one to the passenger business for combination airlines, it can have an important role to play in their profitability. However, growing challenges are threatening the market positions of the combination airlines. Improving their market positioning depends, amongst other factors, on appropriate business models. Yet, the literature on the air cargo business models of combination airlines is scarce. This paper aims to contribute to closing this gap.The research presented herein aimed to identify the representative business models of the combination airlines' cargo strategies. Three strategies have been considered. The research method included a series of structured interviews with key informants from combination airlines, namely: TAP Cargo, Brussels Airlines Cargo, SATA Cargo, Turkish Cargo, SWISS WorldCargo, Finnair Cargo, AF-KLM Cargo, Emirates SkyCargo, Lufthansa Cargo and IAG Cargo.The ten air cargo business models and the representative business models of each strategy are described. The results suggest an overlap between the business models of different strategies. In addition, the results show that an evolution in strategy does not necessarily require a redesign of the business model, but tailored changes in specific components.     

Evaluating corporate social responsibility of airlines using entropy weight and grey relation analysis

This paper applies entropy weight and grey relation analysis to evaluate corporate social responsibility (CSR) performance of eight Chinese major airlines. This paper intends to achieve two main aims. First, this study uses entropy to find the relative weights of performance measures of CSR. In so doing, we find that on-time performance, accident rate, flight frequency, growth of employees revenue, and employees revenue are relatively most important measures. Second, based on the results of entropy analysis, this study ranks the airlines in terms of CSR performance by grey relation analysis. This result shows that most of the larger state-controlled airlines perform better in performance of CSR. Furthermore, the private airline has made relatively large improvement in its CSR performance. In addition, the listed airlines are better than non-listed airlines in CSR performance.     

Entry patterns of low-cost carriers in Hong Kong and implications to the regional market

This study aims to provide a better understanding of Asia's low-cost carriers (LCCs) by empirically analysing their route entry patterns in Hong Kong. Two alternative models have been tested, namely a standard probit model and a generalized least squares estimation. Consistent findings from the two models suggest that LCCs in Asia have a preference for large markets with big populations, high incomes and high traffic volume. On the other hand, the dominance of incumbent full service airlines (FSAs), fierce route competition and the lack of secondary airports are not critical to the growth of LCCs. However, government regulations and airport access are main impediment factors. Despite the adoption of long-distance low-cost models by the region's airlines, geographic distance still plays an important role in LCCs' entry decisions. For the growth of low-cost travel and associated benefits in the tourism industry and overall economy, it is important for governments in the region to liberalize aviation markets, provide sufficient airport capacity, and promote efficient allocation of airport slots.     

Martin Kunz Memorial Lecture. Tourism benefits and aviation policy

Many tourists now travel by air, and aviation liberalisation has greatly contributed to the boom in international tourism. The relevance of tourism economic benefits in aviation policy decisions is becoming established, though there has been little by of analysis of these, of how they can be measured. Here, the nature of tourism's economic benefits is discussed, and ways of measuring them are suggested. These rely on the use of computable general equilibrium models of economies. The measures of tourism benefits obtained from these are positive, though they smaller than more ad-hoc measures which are sometimes used, such as total tourism expenditure. The role of tourism benefits in aviation policy making is considered in several case studies. These indicate that while the tourism benefits to a country from aviation liberalisation are not likely to be as large as benefits to home country travellers or the costs to home country airlines, they are sufficiently large to tilt the balance of benefits and costs of liberalisation in many cases.     

Measuring the productivity changes of Chinese airlines: The impact of the entries of non-state-owned carriers

The competitive environment of the Chinese airline industry has experienced rapid change since non-state-owned airlines entered the market in 2004. We focus on measuring the productivity changes in the Chinese airlines, especially state-owned ones after this change. The results show that non-state-owned airlines are performing better than state-owned airlines. The productivity changes of state-owned airlines are mainly driven by technical changes before or after the entries of non-state-owned airlines. They have little efficiency improvement. However, the productivity changes of private airlines are mainly due to efficiency improvement. The changes associated with international joint venture cargo carrier are due to its significant improvement in both the efficiency and technical changes.     

The effects of use agreements on airport efficiency

Bilateral contracting is integral to the working relationship between airports and airlines. In the U.S., the three common types of airport use agreements are the residual method, the compensatory method, and the hybrid method. Under a residual agreement, the financial risk of the host airport is borne by the signatory airlines, and in return, the signatory airlines pay reduced user fees. Under a compensatory agreement, however, airports bear their own financial risks in the absence of a signatory airline. A hybrid agreement combines the features of residual and compensatory agreements. For example, under a hybrid agreement, airports usually bear their own financial risks in terminal operations while the signatory airlines take over the financial risks in airfield operations. The aim of this paper is to determine whether these three types of business agreements affect airport operational efficiency. Using 2009 to 2016 yearly data of 59 U.S. hub airports, we find that airports with residual-type agreements tend to have lower operational efficiency. This implies that, although under a residual agreement, the signatory airlines pay favorable airport fees and charges, increased airport inefficiency may undercut any potential benefits of the agreement.