EFFICIENCY AND SURVIVABILITY OF NEW ENTRANT AIRLINES

Abstract

On November 18, 1987, the Ministry of Transportation and Communications, Taiwan, announced an ordinance allowing new airlines to be established and routes developed. Taiwan's air industry thus saw a lot of change. This paper explores the outcomes of airline competition and survivability resulting from the liberalization policy through a research on the relative efficiencies of Taiwan's domestic airlines. The result shows that all of the new-entrant airlines had difficulty in using their inputs efficiently in their initial stage of operations. However, their scale efficiencies improved year after year. The incumbent airlines' efficiencies were also improved. This implies that competition between the carriers resulting from entry relaxation was indeed intensified and thus performances were improved. In addition, because of the un-removable barriers of competition, most new entrant airlines indeed experienced the life cycle challenge: growth, decline, and collapse. All the newcomers except UNI Air, a subsidiary of EVA Airways, disappeared.