Drivers of operational efficiency and its impact on market performance in the Indian Airline industry |
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| Affiliation: | 1. Indian Institute of Management Bangalore, Bannerghatta Road, Bangalore, 560076, India;2. Tata Motors, Dharwad, India;1. Dept. of Transportation, University of Petroleum & Energy Studies, Kandoli Campus, Knowledge Acres, Dehradun, 248007, India;2. Dept. of Economics & International Business, University of Petroleum & Energy Studies, Kandoli Campus, Knowledge Acres, Dehradun, 248007, India;1. Faculty of Management and Economics, Dalian University of Technology, No. 2 Linggong Road, Dalian City, 116024, China;2. Transportation Management College, Dalian Maritime University, No. 1 Linghai Road, Dalian City, 116026, China;1. COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355, 21949-900 Rio de Janeiro, Brazil;2. ISEG – Lisbon School of Economics and Management, ULisboa and CEsA - Research Centre on African, Asian and Latin American Studies, Rua Miguel Lupi, 20, 1249-078, Lisboa, Portugal;1. Transportation Management College, Dalian Maritime University, Dalian 116026, China;2. School of Economics and Management, Southeast University, Nanjing 211189, China |
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| Abstract: | India is considered to be one of the toughest aviation markets in the world, due to high fuel prices, overcapacity and intense price competition. It is therefore important to identify critical drivers of performance, which enable the airlines to survive and succeed in this emerging market with huge growth potential. In the current empirical study, we investigate the linkages between various performance drivers, operational efficiencies and market performance. An extensive data collection using primary and secondary sources enabled us to gather data on all the airlines operating in India, both private and public, for the period 2005–2012, on a variety of important parameters. We carried out a two-stage empirical analysis, which involved estimation of operational efficiencies during the first stage using Data Envelopment Analysis, and determination of performance drivers during the second stage using a two-way random effects GLS regression and also a Tobit model. Our findings suggest that while some of the structural and regulatory factors have an undesirable impact on airline performance, the low cost carriers in India have managed to achieve significant operational efficiencies. In addition, we find that, while cost efficiency is driven by a variety of factors, it is the technical efficiency which brings in better market performance through pricing power in the Indian airline industry. |
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| Keywords: | Indian Airline Industry Operational efficiency DEA Market performance GLS Tobit |
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