Challenges to the air cargo business of combination carriers: Analysis of two major Korean Airlines

Abstract

This research explores the efficiency and the total factor productivity of the air cargo business of combination carriers (CCs) using stochastic frontier production. The authors estimate the coefficients of the two models by applying operational data and environment variables. We develop a single-step maximum likelihood procedure to obtain consistent parameter estimates and identify determinants of two airlines’ technical efficiency. We found that the air cargo business of CCs with cargo-dedicated aircraft (CDA) is at stake, shrinking their activities, rate, yield, economies of scale, density, and productivity. The CCs with CDA should update the air cargo business model to reflect current trends. Collaboration is recommended to balance supply and demand and reduce the dissimilarities between passenger and cargo transport businesses.