Analyzing competition of international air cargo carriers in the Asian general air cargo markets

Abstract

This paper presents a model structure to analyze the competitive strategies available to air cargo carriers in the Asian markets, in which all-cargo airlines and combination airlines offer service. Through a two-stage, Nash best-response game, equilibria in the air transportation industry are searched to evaluate individual airline's profit. First, airlines choose whether or not to enter a market and second, they attempt to optimize profits through choice of service frequencies, aircraft sizes and airfreight rate, given the decisions of others. Taipei-Hong Kong and Taipei-Los Angeles route markets are selected as the empirical cases of model application. The examples indicate that combination airlines have competitive advantages in the markets and the equilibria in the markets may change due to the changes of air cargo demand in the market, air passenger travel demand, the operation scale of all-cargo carriers and the availability of time slots at the airports for all-cargo operators.