Airline Group Research Articles

Effects of Beijing-Shanghai high-speed rail on air travel: Passenger types, airline groups and tacit collusion

This paper analyzes the effects of the busiest and most profitable high-speed rail (HSR) line in China — the Beijing-Shanghai HSR — on the aviation markets paralleling this HSR line. In general, we find that both airfare and air travel demand decreased significantly after the entry of the Beijing-Shanghai HSR. In particular, economy-class airfares dropped more than business-class fares did, while the decline in the demand for business-class travel was larger than it was for economy-class travel. The frequency of and the number of seats on the HSR line were significantly and negatively associated with air travel demand, especially with demand for business-class travel. Our results show that the entry of the HSR line led to airfare convergence on the Beijing-Shanghai airline route, which might indicate the existence of tacit collusion among the operating carriers. Governments, airlines and airport authorities need to work together to improve the on-time performance of this profitable route which is currently plagued with frequent flight delays.

Review of Airline-within-Airline strategy: Case studies of the Singapore Airlines Group and Qantas Group

The growth of the aviation industry has seen a rapid increase in low-cost carriers (LCCs) commencing operations, threatening the sustainability of a number of legacy airlines. The response to this challenge and threat has been for legacy airlines to create an airline-within-airline (AWA). This study reviews prior literature regarding the hotel industry and multi-brand strategy, and also uses case studies to examine the evolution of the AWA strategy at the Singapore Airlines Group and the Qantas Group between 2000 and 2016 in order to identify why these airlines operate AWAs successfully. High levels of autonomy, clear strategies, complimentary route networks, appropriate resources and minimal cannibalisation are identified as the primary attributes required for a successful AWA operation. Legacy airlines whose AWA strategy failed in the past often did not operate with all these essential attributes, which resulted in their AWAs undermining and competing directly with their own operations.

PASSENGERS PERCEPTIONS TOWARDS SERVICE QUALITY OF FSC OF AN LCC GROUP

The establishment of Batik Air as a Full-Service-Carrier (FSC) of Lion Air Group, a Low-Cost-Carrier group, marks a new development in the airline industry. LCC groups had started their move to serve a larger customer segment to increase their share in key markets. Previously the multi-brand strategy was only utilized by FSC groups as a response to the entry of LCC in the market. This study specifically tries to investigate the perception of passengers towards FSC within an LCC group. An online survey was conducted among the passengers of Batik Air in the last one year. 247 respondents were obtained resulting in a 67.1% response rate. SEM analysis was used to analyze the data. This study provides light in revealing how passengers perceive the service quality of FSC under an LCC group. The current results also clarify whether the service performances of such FSC align with the perceived services by its customer. This study contributes to the existing customer perception and strategic literature in the way that is among the first studies to investigate the perception of passenger a newly established FSC from an LCC group. The study includes implications for the low-cost airline group that plans to establish a full-service unit to maintain the level of service quality thus can succeed in attracting passengers within the intended market

A metric to assess the competitive position of airlines and airline groups in the intra-European air transport market

A strong competitive position can not only be regarded as a key success factor for firms, but may also indicate market power. As with operators of other long-distance transport modes, like e.g. train or coach operators, assessing an airline's overall competitive position is not trivial: This is because airlines serve many different, direct and indirect origin-destination (OD) markets between which competition intensity can vary immensely. Hence, airline (or rather airline group) networks compete against each other, meaning that “typical”, e.g. HHI-based competition assessments at, e.g., the national, airport or direct route levels will not be sufficient to get a full picture. This paper presents a modelling approach for an indicator for the individual competitive positions (CP) of airlines and airline groups at the network level. An application to the intra-European market, based on OD data for 2015, indicates a quite comfortable competitive position for low cost carriers like Ryanair, WIZZ Air, FlyBE or Volotea, followed by the major airline groups (Lufthansa, Air France-KLM, IAG) which focus on hub and spoke networks along some low cost activities. The weakest CP's within our sample of the 30 largest European airlines and airline groups are calculated for leisure airlines like Monarch, which recently filed for bankruptcy.

An exploratory study on the effects of human, technical and operating factors on aviation safety

ABSTRACTThis article explores the effects of human, technical, and operating factors on the safety record of 50 airlines over the period 2004 to 2015. The factors examined include (1) pilot salary, (2) fleet age, (3) International Air Transport Association - Operational Safety Audit (IOSA) certification, (4) International Civil Aviation Organization safety parameters (i.e., legislation, organization, licensing, operations, airworthiness, accident investigation, air navigation service, and aerodromes), and (5) cultural-related indices (such as power distance, degree of uncertainty avoidance, and language for communication). Among the important factors such as organization, licensing, and operations performance, pilot salary is identified as the most important factor differentiating airlines with or without crashes. Within the group of airlines that encountered air accidents during the study period, fleet age, airworthiness, accident investigation, air navigation services and aerodromes scores, and salary are found to be significant factors on accident rate. IOSA certification, aerodromes, language of communi-cation, and uncertainty avoidance appear to be totally immaterial. Identifying the important factors is important to assist airlines investigate and improve their safety records.

NEGATIVE VALUES IN DEA: EXAMINATION OF THE RELATIONSHIP BETWEEN ECONOMIC GROWTH RATES AND AIRLINE PERFORMANCES

The main goal of this study is to determine whether there is a relationship between the economic growth rates and the performances of airline companies. From this point of view, Data Envelopment Analysis (DEA) is applied to star alliance member airlines for a period of 2012-2014. Firstly, the technical, pure technical and scale efficiency scores were calculated. Then, airlines are divided into four regional groups as America, Europe, Asia and Africa in order to determine the most efficient region. Further, countries economic growth rates which the airline is located are analyzed to support DEA results. Finally, Asia group is found as the most efficient airline group. http://dx.doi.org/10.17130/ijmeb.2018239939

In Asia, Does Airline Service Quality Matter to Investors?

The purpose of this study is to evaluate whether premium services airlines in Asia offer better returns to investors as compared to normal services airlines. To accomplish this, portfolios are created for each airline group and compared against benchmarks in monthly assessments over a sixty two month period ending in October 2017. The benchmarks include the global market and the oil market. The global market offers a comparison to a baseline expectation while the oil market represents a major cost component for the airline industry. The findings point to the premium services airlines as being the superior performing group in relation to the normal services airlines as judged in six cases using various configurations of the benchmarks. These results are further confirmation that in some industry segments, service quality matters. Included is literature pertaining to service quality, loyalty, and profitability. Each of these topics is expanded to show the link between various facets of customer satisfaction and implications on overall company profitability.

Pricing dynamics between airline groups with dual-brand services: The case of the Australian domestic market

The Australian aviation industry achieved substantial growth after the abolition of the “two-airline-policy” in 1990. With Virgin’s purchase of Tiger Airways, a new duopoly between two airlines groups, each consisting of a full service airline (FSA) and a low cost carrier (LCC), emerged in the domestic market. In this study, we analyze the pricing dynamics among the four airlines of the duopoly groups, using panel data of online fares on the four most densely travelled routes in the domestic market. Our empirical results suggest that market segmentation allows the FSAs to charge significantly higher prices than the LCCs. Still, there is clear evidence of competition within and across the market segments, and the airlines’ pricing responses are asymmetric. Virgin’s price responses to Qantas and Jetstar are moderate. In comparison, more than one third of Qantas’s fare changes and less than half of Jetstar’s fare changes are in response to Virgin’s fare adjustments in the previous period. Despite Qantas and Jetstar’s large market share, after lengthy and costly price wars in previous years, the Qantas group still responds to Virgin as if competing with an entrant. All four carriers adopt revenue management practices, but the pricing of Qantas and Jetstar does not seem to be coordinated. Our study identifies a complex competition pattern between airline groups offering dual-brand services, and suggests that the Australian domestic market has not reached a stable equilibrium.

The future of information systems in airline industries: an interview with Seoknam Ko, Chief Information Officer of Asiana Airlines (including Air Busan and Air Seoul) and Senior Vice President of Asiana IDT, Seoul, Korea

ABSTRACTThis interview provides insights into the growing role of information systems (IT) and information technologies (IT) in the airline businesses. The interview also highlights the importance of industry-specific opportunities and challenges in identifying the role of IS and IT. It identifies the growth of the firm from a focus on passenger service systems to operational and strategic areas of the airline business by leveraging the emerging technologies such as mobile computing, cloud infrastructure, data analytics, and artificial intelligence (AI). Seoknam Ko is currently the Chief Information Officer (CIO) of Asiana Airlines and Senior Vice President of Asiana IDT, a leading airline group in South Korea. He has vast experience in airline business spanning over 27 years.

Air transport services in regional Australia: Demand pattern, frequency choice and airport entry

In this study, we investigate the development of the aviation market at Australia’s top 50 regional airports during the 2005–2013 period. Our demand estimation results suggest that a higher commodity price increases the traffic volume in markets where the local economy is heavily reliant on mineral resources and that appreciation of the Australian dollar decreases the passenger flow in tourism-dependent areas. The presence of leading airlines and low-cost carriers and the availability of international services all contribute positively to market growth. Airport entry analysis reveals that the major carriers engage in clear strategic interactions. The Qantas airline group uses Jetstar as a fighting brand, such that Jetstar flies to a destination if and only if the regional airport is also served by Virgin Australia, the group’s major competitor. Unlike the routes connected to major airports, the demand at regional airports is not sensitive to flight frequency. Our empirical results support the introduction of a consistent aviation policy across Australia, especially for issues related to airline competition and demand stimulation. However, special consideration needs to be paid to regional airports to help them deal with economic shocks and cover fixed costs.

The strategic impact of airline group diversification: The cases of Emirates and Lufthansa

The airline industry is a diverse sector, requiring the support of a varied range of ancillary businesses such as maintenance, catering and travel agencies to carry out its activities. Many of these supporting businesses demonstrate the potential to drive wider profit margins despite generating lower revenues than the airlines themselves, making them attractive investment opportunities in a sector prone to volatile and often lacklustre trading. This study investigates two of the largest diversified airline groups, Germany's Lufthansa Group and Dubai's Emirates Group, each adopting a distinct approach towards diversification that may serve as a model for airline groups worldwide. The areas investigated were Cargo, Maintenance, Catering and Travel Services. The research found that whilst diversification may not always present the most attractive option financially, strategic factors can often outweigh such concerns. Business units studied were found to have variable prospects; particularly in the case of Catering, a sector on the rise – versus in-house Maintenance, which for airlines, is likely to see decline. The pursuit of third party revenue streams to offset weak internal trading and growth in competencies were found to be the key drivers of success. Interplay between segments was also apparent, showing that a well-organised diversification strategy can achieve robust cross-functional benefits and deliver significant value to the parent organisation.

A latent class segmentation analysis of airlines based on website evaluation

Company websites are an important instrument for relationship marketing activities. In the airline industry, web-based marketing has already been widely applied to service frequent customers as well as to attract new ones. Most of the established airlines are attempting to stimulate customers to shift from traditional distribution channels to online channels. Accordingly, this study identifies and evaluates different groups of airlines based on website evaluation. In order to achieve this objective, six dimensions of website persuasiveness (informativeness, usability, credibility, inspiration, involvement and reciprocity) are evaluated. The methodology applied is based on content analysis of a sample of 240 airline websites. The results obtained enable the identification and description of significant differences in the degree of persuasiveness displayed by the websites. Specifically, this research has identified three airline segments: (1) “influential”, (2) “follower”, and (3) “passive”. The “influential” segment is the most persuasive and can generate influence on other groups of airline websites. The “followers airlines” segment comprises airlines that have a high initiative to implement tools to increase the persuasiveness of the websites. Finally, the “passive airlines” segment comprises airlines with lower website persuasiveness, along with low readiness to communicate and influence the users' buying decisions. The findings can provide valuable information for airlines managers to understand the relative level of competitiveness of their websites in the airline industry.

SESAR: Future-proofing Europe’s Airports

A well-functioning and efficient Air Traffic Management (ATM) system is a vital element for the sustainability of global aviation. That is why SESAR (Single European Sky Air Traffic Management Research) was founded in 2007 in order to modernise and harmonise ATM systems through the definition, development and deployment of innovative technological and operational solutions. Today, SESAR consists of two pillars: The SESAR Joint Undertaking (SJU), a public–private partnership, which pools together the knowledge and resources of the entire ATM community in order to research and validate new technological solutions. These solutions are then handed over to the SESAR Deployment Manager, comprised of a group of air navigation service providers, airports and airlines, whose role is to deliver them into everyday operations across Europe.

Serving vs. settling: What drives the establishment of low-cost carriers’ foreign bases?

This paper uses a probit model on a cross-sectional dataset of 202 airports and 29 airlines to assess the drivers for the establishment of foreign bases by European low-cost carriers (LCCs). We find that managerial, organizational, and environmental factors impact on foreign base establishment. In particular, there is evidence that the presence of a growth-oriented firm leader and the strategic importance of an airport for an airline significantly increase the probability of the presence of bases, while national unit labor costs, the volatility of flight operations and the membership of an LCC in an airline group significantly decrease this probability.

Air deregulation in China and its impact on airline competition 1994–2012

China’s air transportation has experienced rapid growth and major reforms in the past three decades, some of which have been partially successful and are still ongoing today. The paper aims to analyze China’s air deregulation experience over the last two decades and its impact on airline competition from a geographical perspective. After the establishment of the “Big Three” in 2002, the paper reveals that there has been a trade-off between the extent of deregulation and airline competition in China because the central government has tended to strengthen the “Big Three” rather than totally open the market to private and locally owned airlines. The paper uses each airline group as the basic unit of analysis and reveals that (1) the air market has been more concentrated in the “Big Three” as a result of the process of air deregulation; (2) airline competition in over two thirds of the airports and one half of the routes has increased in the last 18years, but the core airports and trunk routes are chiefly dominated by the “Big Three”. The peripheral airports and thin routes have been operated by private and locally owned airlines; and (3) regionally, airline competition has occurred in most airports of the eastern region, and it is more intense than in the central and western regions. But even here, competition in the eastern region has however decreased in 1994–2012. The three main contributions of the paper are: (1) the use of two measures of competition in the airline market; (2) the analysis of the historical evolution of competition; and (3) an understanding the role of the geography of competition in the Chinese airline market.

Explanatory Analysis of Ancillary Revenues: Case Study of Three European Airlines

This paper quantifies an impact of ancillary revenues on changes of airlines total revenues using the data of three European low-cost airlines during the period from 2006 to 2011. The analysis reveals that ancillary revenues are important in generating total revenues in a low cost airlines group in terms of dynamics and subsequent influence on profit/loss result. The research findings confirmed that ancillary revenues influenced changes of total revenues significantly achieving in prevailing cases double-digit percentage share in the changes of total revenues expressed as a whole. So, quantified impact of ancillary revenues dynamics on dynamic of total revenues is undoubtly important for overall dynamics of airlines total revenues. Our analysis based on quantitative approach of explanatory analysis also clearly identified ancillary revenues as pro-operational profit driver through its positive and not marginal impact on dynamics in total airlines revenues. This disclosure is in line with general assumption of considerable role of ancillary revenues in low cost airlines economics.

A merger effect on different airline groups: empirical study on the Delta-Northwest merger in 2008

The airline industry has performed inconsistently since deregulation in 1978 and there has been a significant profit discrepancy between legacy airlines and low-cost carriers. Starting from the early 2000s, four of the largest legacy airlines chose to consolidate with an effort to increase efficiency and profitability. Delta Air Lines and Northwest Airlines have consolidated in 2008, becoming the largest commercial airline in the world. This paper examined the merger effect on the airfares on top 1,000 U.S. domestic city-pair routes in relation to the number of passengers, the distance, and the market share as well as its potential anticompetitive issues. All airlines were categorized into three groups - Legacy Airlines, Delta-Northwest, and Low-Cost Carriers - and the interactions between the airfares and the variables were examined within each airline group and across different airline groups. It was found that the airfares of legacy airlines and Delta-Northwest decreased at a faster rate than the low-cost carriers while their market shares increased simultaneously irrespective of whether they offered the lowest prices or had the largest market share on each route.

The impact of terminal re-organisation on belly-hold freight operation chains at airports

While it is widely acknowledged that airport re-organisation from destination to dedicated airline group terminals makes passenger travel more seamless, more efficient and also more profitable for both airlines and airports, there is little known about the impacts of such change on freight and in particular belly-hold cargo chains. Our analysis includes data from all airports in Australia but focuses primarily on the proposed re-organisation of Sydney Kingsford Smith airport. This paper reveals a significant relationship between international freight volumes, terminal organisation and freighter operations. However, our interview results only confirm the volume/aircraft type relationship. The paper aims to contribute to the general discussion on the impact of passenger terminal organisation on belly-hold freight operations and more specifically to the consultation process around airport master planning.

Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns

This paper investigates the effects of the airlines-within-airlines strategy adopted by Qantas airline group, which simultaneously runs a full-service airline (Qantas Airways) and a low-cost carrier (Jetstar Airways). Our empirical investigation of airline pricing and route entry patterns in the Australian domestic market suggests that Jetstar has been used as a fighting brand against rival low cost carriers. Such a strategy increases group airlines’ prices at the expenses of rival airlines. There is preliminary evidence that pricing benefits to Qantas Group come from increased market power as well as service quality improvements.

DOES PERTAINING TO A GLOBAL STRATEGIC ALLIANCE IMPROVE THE BOTTOM LINE?

This study researched whether pertaining to a global strategic alliance brought significant benefits to the ‘bottom line’ of allied airlines. The study used two groups: a group of airlines which had joined one of three global alliances against a control group of airlines which had not joined any alliances. The research compared the net return of those two groups before and after airlines joined their alliances (or equivalent measure), as well as their relative net performance both in the short-term and in a longer term. Results showed a sensible deterioration in net profitability for the alliance group and a perceptible improvement in net profitability for the nonalliance group. The latter also differed from the former in having a positive relative net performance in the short-term.