The competitive landscape of air transport in Europe

Competition between airlines and airports increased significantly since the deregulation of the intra-European air transport market in 1997. The passenger has a wider choice in terms of routings and departure airports than twenty-five years ago and pays a lower price. In this paper we investigate in which parts of Europe airline and airport competition are most intense and how the competitive landscape has changed since the liberalisation of the intra-European market.Competition levels are modelled for all air transport markets available to consumers in each western-European municipality using a Multinomial Logit (MNL) model. This allows us to determine how competitive the air transport product available to consumers in each of those municipalities truly is and how competition levels have changed. As opposed to most other competition studies we take all viable direct and indirect flight alternatives into account, as well as competing alternatives from nearby (adjacent) airports. This makes it the most extensive analysis of competition in the European aviation industry performed to date.As expected the results show that airline competition, allowing for grouping of the airlines belonging to the same alliance together, has in general increased since the liberalisation of the intra-European market. This can mainly be ascribed to the rise of the low cost business model. The spatial analysis however shows an uneven outcome. Changes in airline competition are most pronounced in areas that were previously not well served, such as the more remote regions in the United Kingdom, Spain and Italy. In Germany airline competition is lagging behind due to the strong dominance of the STAR alliance. In large parts of Scandinavia, but also in parts of France and Spain, airline competition is considerably less. These areas are often served only by a handful of airports and/or airlines, limiting airline choice and therefore competition.     

Rivalry amongst European low cost airlines: Are shareholders enjoying the game?

We develop a model of quantity and price competition for low cost airlines based on announcements of new routes and their impacts on the announcer and on its rival. We find that both firms’ profits may rise or fall as a result of an announcement of new routes, depending on launching costs for the announcer, and on whether market expansion or market substitution is dominant for the rival. We present an empirical study for two European low cost airlines that shows asymmetric behaviour; while EasyJet announcements have positive effects on Ryanair’s share price, the opposite is does not occur. This suggests that an airline’s reputation for reacting in response to rivals’ announcements may affect the stock market and may thus affect announcement behaviour.     

Contract optimization with front-end fare discounts for airline corporate deals

This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline’s profit is modeled using a multinomial logit function that captures the client’s choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.     

Impact of e-business on air travel markets: Distribution of airline tickets in Korea

Early e-business activity in the airline industry was limited to the provision of flight schedule information to customers on websites. Recently, however, many airlines have expanded the capability of their web sites for selling tickets to make use of this cheap distribution channel. Here, we explore the impacts of airline e-business on the performance of air ticket distribution channels. Through a conjoint analysis, we suggest a model to estimate the change of market sales for each distribution channel. The impact of e-business on air travel markets and some implications on e-business strategy for both airlines and travel agents are also identified through an empirical survey.     

Internationalization strategies of EU and Asia–Pacific low fare airlines

We employ Dunning’s eclectic paradigm (OLI) to shed light onto low fare airlines’ internationalization strategies. In addition to 31 European low fare airlines, we also analyze the internationalization strategies of 41 low cost carriers in the Asia–Pacific region. The results indicate that homogenous groups of such airlines emerge with regard to their internationalization strategies and that capital and ownership structure as well as relative timing is especially closely related to low fare airline’s entry modal choice. We discuss inferences for the use of the OLI paradigm in further studies of airline internationalization.     

A voice in the skies: Listening to airline passenger preferences

This study aims to identify the impact levels and priorities in the service expectations that passengers have when identifying a preferred airline. The results are based on probabilities and impacts, and can help airlines to accurately understand the preference criteria of their passengers. The priorities of the passengers may differ according to the airline chosen; therefore, the probabilities shown in this study can inform senior airline managers about the passenger perspective. This study uses the Stochastic Multicriteria Acceptability Analysis-2 (SMAA-2) method. SMAA-2 identifies the priorities and impact levels of passengers’ expectations on airline selection, and the ranking of alternative firms according to the probability. According to the obtained results, Airline 3 (AF₃) is the most preferred airline with the highest confidence rate. This airline operates based on a low-cost model that allows passengers to choose additional services for additional charges. The passenger expectations that have the highest impact on the preference when selecting an airline are 1) ticket prices, 2) punctuality, and 3) booking convenience. Free in-flight food and beverages, the variety and quality of the food and beverages, and voyager miles programs for loyal customers are found to have no impact on the ranking of airlines. The expectations identified by the passengers in this study are related to the outcome quality dimension, with services dominated by flexible features. The findings of this study define the passenger as a rational decision maker who is price sensitive.     

Price perception of online airline ticket shoppers

This study combines the concept of price perception with Internet users’ behavior as a theoretical framework in which to portray price perception among consumers with different choices of retail channels. The findings of a survey conducted in Taiwan show that online airline ticket shoppers tend to perceive price more negatively than offline airline ticket shoppers and assignors. Consumers are likely to adopt Internet as their retail channel for airline ticket if they are more concerned about value for money and lower prices. These consumers are also tended to be the information sources to their acquaintances.     

How motivation,opportunity and ability can drive online airline ticket purchases

Despite the resources airlines are devoting to increasing e-commerce, the key drivers of online airline ticket purchases have been little explored. This study analyzes how motivation, opportunity and ability influence patrons’ intentions to purchase tickets online and the features that influence online airline ticket purchases. A sample of online purchasers of airline tickets in Spain is examined.     

What hurts the dominant airlines at hub airports?

This paper estimates a frequency equation to explain the determinants of network airline service levels at their hub airports. Drawing on European data for 2002–2013, we find that network airlines reduce frequencies when the share of low-cost airlines increases both on the route and at the hub airport. On the contrary, frequency choices of network airlines are not affected by competition from low-cost airlines operating in nearby secondary airports. We also find some evidence that mergers in Europe may result in a re-organization of the route structure in favor of the hubs of the larger airline.     

Strategic responses by European airlines to the Covid-19 pandemic: A soft landing or a turbulent ride?

The coronavirus (COVID-19) pandemic has dramatically affected the aviation industry. This paper investigates how 20 European airlines communicated their crisis messages during the pandemic by employing Situational Crisis Communication Theory (SCCT) to airline responses. This qualitative study consisting of a systematic review and content analysis, examined 7237 messages from social media channels and press releases posted between December 1, 2019, and May 25, 2020, when the crisis unfolded worldwide. The results indicate that the airlines primarily emphasized instructing and adjusting crisis communication strategies. Further, Twitter replaced Facebook as the primary communication channel. This study provides insights on how airlines can and should communicate crisis-related messages amidst a severe pandemic. The study concludes with the implications of these findings and recommendations for airline stakeholders moving forward.     

Air deregulation in China and its impact on airline competition 1994–2012

China’s air transportation has experienced rapid growth and major reforms in the past three decades, some of which have been partially successful and are still ongoing today. The paper aims to analyze China’s air deregulation experience over the last two decades and its impact on airline competition from a geographical perspective. After the establishment of the “Big Three” in 2002, the paper reveals that there has been a trade-off between the extent of deregulation and airline competition in China because the central government has tended to strengthen the “Big Three” rather than totally open the market to private and locally owned airlines. The paper uses each airline group as the basic unit of analysis and reveals that (1) the air market has been more concentrated in the “Big Three” as a result of the process of air deregulation; (2) airline competition in over two thirds of the airports and one half of the routes has increased in the last 18 years, but the core airports and trunk routes are chiefly dominated by the “Big Three”. The peripheral airports and thin routes have been operated by private and locally owned airlines; and (3) regionally, airline competition has occurred in most airports of the eastern region, and it is more intense than in the central and western regions. But even here, competition in the eastern region has however decreased in 1994–2012. The three main contributions of the paper are: (1) the use of two measures of competition in the airline market; (2) the analysis of the historical evolution of competition; and (3) an understanding the role of the geography of competition in the Chinese airline market.     

Network competition and the difference in operating cost: Model analysis

In this paper, we propose a bi-level air transport market model which can handle the shape of network, airfare and service frequency as airline’s control variables and passenger’s behavior. We apply the model to the simple duopolistic market and observe how airlines change their network shape. We assume two types of airlines, the incumbent and the entrant, having different operating cost and conduct numerical computation. From the results, we discuss the features of network equilibrium considering difference in operating cost and confirm that inviting low cost carriers contributes to improving social welfare.     

A method for reducing information asymmetry in destination–airline relationships

We propose a measure of business risk in air travel demand at the route level that can reduce information asymmetry during route development negotiations between tourism destinations and airlines. Aviation-exposed risk (AER) conveys information about the level of uncertainty with regard to air travel demand from an airline’s perspective. Using AER, tourism destinations and air service development teams can evaluate their risks from the perspective of the airline and its network. From there, an assessment can be made as to the value of air services in certain circumstances, including whether a direct underwrite or risk share between airlines and destinations is viable and necessary. By applying a portfolio analysis to an airline’s network, we find evidence that AER does indeed mimic the actual capacity distribution of the network. This provides support for AER as a useful risk measure to be used in practice.     

Organizational learning,operating costs and airline consolidation policy in the Chinese airline industry

This study investigated and reviewed organizational learning in the Chinese airline industry, which is dominated by state-owned or state-controlled airlines. This empirical research focused on the extensive scale of airline mergers and acquisitions among 12 Chinese airlines for the period of 1996–2014. This research aims to make a contribution towards addressing the general lack of academic reflection on the impact of organizational learning on airline performance during and after the completion of mergers and acquisitions. The empirical findings of this paper suggested that there was, in general, organizational learning experienced by Chinese airlines from their prior operating experience in improving operating costs. However, airline mergers in 2001/02 increased airlines' average operating costs, as most state-owned airlines are notorious for poor cost management. Significantly, the performance improvement among Chinese airlines was found during the post-merger periods in this study, and the increase in Chinese airlines’ operating costs during the post-acquisition periods due to the limited integration of 2010 acquisition compared with the 2001/02 mergers.     

Airport–airline vertical relationships,their effects and regulatory policy implications

This paper examines the forms and effects of vertical relationships between airports and airlines with a focus on the North American and European aviation markets. We find that such vertical relationships enables those participating to achieve various benefits and may be formed as a competitive response to other competing airport–airline alliances. In some cases, vertical airport–airline relationships strengthen the hub status of major airports, leading to increased employment and service quality in local markets. On the other hand, preferential treatment of a particular airline by an airport may enhance that airline’s market power, allowing it to dominate the airport and charge hub premiums. The competition and welfare implications of airport–airline vertical alliances can be complicated and two-sided, subject to the influences of other factors such as the market structures of the airline and airport markets.     

The effects of corporate governance on airline performance: Production and marketing efficiency perspectives

This study explores the relationship between operating performance and corporate governance in 30 airline companies operating in the US. First, this study applies a two-stage Data Envelopment Analysis (DEA) to evaluate the production efficiency and marketing efficiency of the airlines. Our findings indicate that, in general, there is not as much dispersion in the relative productive efficiencies of the airlines as there is in their marketing efficiencies. The low-cost airlines, on average, are more efficient carriers than the full-service ones, but less efficient marketers. Secondly, truncated regression is used to explore whether the characteristics of corporate governance affect airline performance. The results demonstrate that corporate governance influences firm performance significantly. Finally, we address the managerial decision-making matrix and make suggestions to help airline managers improve performance.     

Strategic airline alliances and endogenous Stackelberg equilibria

This paper analyzes the economic effects of the code-sharing alliances between an international and a domestic airline. If these two allied airlines and a separate unallied international airline endogenously choose the role of fare-leader or fare-follower, two types of Stackelberg equilibria exist. This finding suggests that the Stackelberg solution seems reasonable, and provides a guideline for the airlines’ role-choosing. Furthermore, although this complementary alliance improves the social welfare, it decreases the consumer surplus of the direct international passengers and may decrease that of the direct domestic passengers. The negative effects should also be considered when governments evaluate a complementary alliance.     

Price competition and inefficiency of free network formation in the airline market

The analyses presented herein use the undercut-proof equilibrium, a new equilibrium concept for price competition with product differentiation, to illustrate whether it is socially optimal for an airline to form a network freely. The results show that an excessive network is formed if the differences, in terms of distance, between two airlines are small. If the differences are moderate, an excessive network is formed depending on the set-up costs and the number of passengers. For large differences, an excessive network is formed based on the set-up costs.     

CNG2020 strategy and airline efficiency: A Network Epsilon-Based Measure with managerial disposability

In this paper, we analyze the impacts of CNG2020 strategy on the efficiency of 29 international airlines during 2021–2023. Predictions are made through neural networks based on the empirical data from 2008 to 2015. Following the principle of CNG2020 strategy, we calculate the emission limit for each airline. Then we propose a new model, Network Epsilon-Based Measure with managerial disposability, to discuss the difference in efficiency of the airlines when the CNG2020 strategy is considered. The main findings are: (1) For most of these 29 airlines, the CNG2020 strategy has little influence on their efficiency. (2) The efficiency has little variation under the following conditions: when the carbon price is 8 $/ton CO₂-eq, when the price is 14 $/ton CO₂-eq, and when the price is 20 $/ton CO₂-eq. (3) Scandinavian is identified as the benchmarking airline.     

The pricing responses of non-bag fee airlines to the use of bag fees in the US air travel market

Using a panel data for Southwest and JetBlue in the 1st quarter of 2009, 2011, and 2013, we develop an empirical study and find evidence suggesting that the amount of bag fee charged by bag fee airlines, including those direct rivals at the route level and indirect rivals competing from adjacent airports, has a positive and significant effect on the airfare of non-bag fee airlines and such a positive association is smaller on vacation-oriented routes, but greater on routes with higher per capita income at endpoint cities. Moreover, the results are found that on the routes where Southwest is the only non-bag fee airline, the amount of bag fee charged by other airlines has a positive and significant effect on the traffic volume of Southwest. This traffic increasing effect, however, may be offset by the higher airfare of Southwest in response to other airlines’ imposition of bag fees.