COVID-19 and business renewal: Lessons and insights from the global airline industry

The emergence of the COVID-19 pandemic has adversely affected the fortunes of multiple companies around the globe. Accordingly, questions are increasingly being asked about how organizations can revitalize during and after a crisis. Yet, we have limited understanding of how organizations renew themselves during crises over time. We explore this question through the lens and examination of two South-Asian airlines: Pakistan International Airlines and Sri Lankan Airlines. The cases offer important insights into the reasons behind underperformance of state-controlled enterprises and renewal activities. We shed light on strategic renewal (SR) in the wake of increasing liberalization and deregulations in the global airline industry. To this end, we propose a four-stage approach towards renewing such underperforming organizations to respond effectively to black swan events and external shocks.     

Evaluating domestic bias on airline passengers’ ratings: The moderating effect of cultural value orientation

We explore differences in airline passengers’ online ratings toward domestic and foreign carriers. Using a dataset of more than 380,000 airline passenger reviews obtained from TripAdvisor, we show that on average passengers express higher satisfaction (as proxied by their overall rating) for airline service encounters with domestic carriers, exhibiting a form of domestic bias. Using Hofstede’s framework, we examine how cultural dimensions influence the strength of this bias and find support for the moderating impact (positive and negative) of passengers’ cultural dimensions on their provided ratings toward domestic airlines. The study has theoretical and practical implications for international marketing researchers and airline operational planners.     

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.     

Air route suspension: The role of stakeholder engagement and aviation and non-aviation factors

This study provides insight into how aviation and non-aviation factors affect the decision to suspend air routes. Using examples from Australian domestic routes, the paper analyses the business relationships and negotiation processes followed by airports, airlines, and destination management organizations (DMOs) to avoid air route suspensions. Data were collected through semi-structured interviews with key aviation and tourism stakeholders directly impacted by suspended routes. The outcomes of this paper demonstrate that while most of the major reasons for air route suspension in Australia are mentioned in existing literature and are linked to demand, other factors have not previously been deeply investigated, including how stakeholders can be involved to avoid air route suspension. The paper also explores and identifies strengths and weaknesses in the relationship among airlines, DMOs and airports.     

Thinking through the meteoric rise of Middle-East carriers from Singapore Airlines' vantage point

The rise of Middle East carriers in the past decade has been nothing less than meteoric. Based on the notion of generic strategy, we analysed the potential for competitors of the leading Middle East carriers to respond in terms of market scope and product characteristics, using Singapore Airlines as a reference. We found that it was generally difficult for Singapore Airlines to compete in terms of market scope, and thus it should concentrate on offering different degrees of differentiation in its products. While the latest small, long-haul aircraft could help increase Singapore Airlines' market scope, this impact would be marginal at best. We compared the product offerings and prices for the Business and Economy cabins, and noted the intensive competitive pressures the leading Middle East carriers exerted on Singapore Airlines. Improving specific product qualities such as guaranteeing a horizontally flat bed in Business and the overall quality in Economy helps competitors command higher prices, while other niches are still possible.     

Dynamic DEA models with network structure: An application for Iranian airlines

Efficiency estimation of interdependent divisions within a company or assessing the interrelated processes in a production system provides insights for improving the operational performance. Recent developments in network data envelopment analysis (NDEA) models enable decision making units (DMUs) to be informed of inefficient processes within the system. The NDEA model assesses the processes of the system in a specific moment and ignores the dynamic effects within the production processes. Thus, without considering the temporal dimension of production processes, biased efficiency measurement will be obtained that provides misleading information to DMUs. For evaluating the performance of a DMU with interrelated processes during specified multiple periods, this paper proposes a relational dynamic NDEA (DNDEA) model which measures the efficiencies of the system and its internal processes over the time, simultaneously. To illustrate the capability of the proposed model, this study for the first time measures the efficiency of eight Iranian airlines in several periods connected to each other by carry over flows. The actual data is gathered in three periods from 2010 to 2012 and the results are compared with the dynamic DEA and network DEA models in the same time span.     

Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier

In the post-liberalization period, competition has increased in airline markets. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive on less dense routes and shorter routes.     

Does High Service Quality Reduce Risk or Create Idiosyncratic Returns?

This article explores the impact of service quality on idiosyncratic returns, idiosyncratic risk (nonsystematic risk), and beta (systematic risk). Service quality was derived from the airline quality rating, and three dependent variables were calculated by the Fama–French four-factor model. The data includes 1,512 monthly records from 1997 to 2006, across 21 airlines. Multiple regression and vector autoregressive models were applied to test relationships among all, low-cost, and non-low-cost airlines. The study found that service quality has a positive impact on idiosyncratic returns in non-low-cost airlines; non-low-cost airlines are less affected by changes in the external environment.     

Economies of traffic density and scale in the integrated air cargo industry: The cost structures of FedEx Express and UPS Airlines

This paper examines the cost structures of the leading integrated air cargo carriers, FedEx Express and UPS Airlines. A total cost model is estimated for the two carriers using quarterly data on domestic operations and costs over a nine-year period (2003–2011). The estimated model indicates that the integrated industry exhibits increasing returns to traffic density and constant returns to scale. Accounting for carrier-specific differences in cost structure and network size, FedEx Express is found to be more cost-efficient than UPS Airlines. Looking at the carriers individually, UPS Airlines exhibits substantial economies of traffic density and constant returns to scale while FedEx Express' cost structure is characterized by weak economies of density and constant returns to scale. The combined effect of returns to density and returns to scale on the cost structures of integrated carriers is captured by economies of size. Both FedEx Express and UPS Airlines exhibit economies of size, indicating that carriers in the integrated industry can be more cost efficient by making appropriate adjustments to their network size as their output grows. Moreover, the relative cost-efficiencies of the carriers are reversed when their network-size differences are not controlled.     

The importance of concession revenues in the privatization of airports

We investigate the tradeoff between the airport’s concession and aeronautical revenues—two complementary services. Increasing the frequency of flights may result with congestion which could stimulate demand for concessions, but may also harm the demand for flights. When passengers have a low valuation for the concession good, the opportunity for concession revenue is small and the airport focuses its revenue on the aeronautical (i.e., landing) fees. With a sufficiently large valuation for concession goods, the airport may lower the aeronautical charges to stimulate greater flight frequency in order to lower airfares thereby attracting more passengers ultimately to increase concessions revenues. It is in the latter case where we observe minimal loss of aeronautical welfare when airports are privatized. Thus, our research could help guide decision makers in the airport privatization process. Namely, we find that privatization is not recommended unless the potential for concession revenues is sufficiently large.