Competitive Analysis in Oligopolistic Aviation

What elements are needed to analyze the competitive position of an airline in the oligopolistic aviation market?

Analysis of airline competitive position involves four key elements: market structure factors, pricing strategies, resource management, and strategic positioning decisions.

Abstract

Airline competitiveness in oligopolistic markets depends on several interconnected elements. Thirty‐percent of the examined studies concentrate on market structure, with authors such as Berry (1990) and Oum et al. (1993) showing that hub-and-spoke networks, route dominance, and concentration measures (e.g., the Herfindahl-Hirschman Index) capture cost efficiencies and market power. Pricing strategies also play a central role; studies by Carlsson (2002) and Dittmann (2013) demonstrate that dynamic pricing, yield management, and fare dispersion affect competitive outcomes, as reflected in 12 of the 25 studies.

Resource-based factors further influence competitive position. Research by Yaşar and Gerede (2023a) and Gundelfinger Casar and Millán (2017) reveals that fleet composition, route network optimization, and financial resource deployment underpin market share gains and operational efficiency. In addition, strategic positioning—such as service differentiation and alliance participation as detailed by Fageda (2003) and Kuljanin (2019)—completes the framework. Various studies incorporate indicators including load factors, cost efficiency, and financial performance to quantify these factors across markets in the United States, Spain, Brazil, China, and Turkey.

Methods

We analyzed 25 sources from an initial pool of 500, using 6 screening criteria. Each paper was reviewed for 5 key aspects that mattered most to the research question.

Results

Characteristics of Included Studies

Study Focus

• Airline competition and product differentiation
• Price and frequency choice
• Market structure and pricing strategies
• Competitive behavior of airlines
• Regulation, market structure, and performance

Methodology

• Econometric analysis or modeling was the most common methodology.
• Empirical models or studies were also frequently used.

Market Context

• The most studied markets were Spain and the US, followed by Brazil, China, and Turkey.

Thematic Analysis

Market Structure and Competitive Dynamics

• Hub-and-Spoke Network Effects: Berry (1990) argues that hub-and-spoke networks allow airlines to reduce costs and increase service frequency, enhancing competitive position.
• Market Concentration Impacts: Gonenc and Nicoletti (2000) find that lower market concentration is associated with increased productive efficiency and lower fares across OECD countries.
• Entry Barriers and Competitive Responses: Fageda (2003) notes that scale advantages of major airlines in the Spanish market create barriers for smaller airlines.

Resource-Based Competitive Factors

• Fleet Composition and Utilization: Yaşar and Gerede (2023a) identify fleet homogeneity as a positive influencing factor for market share gain and operational performance.
• Route Network Optimization: Berry (1990) highlights how hub-and-spoke systems allow airlines to reduce the number of round-trips necessary while increasing passenger miles flown.
• Financial Resource Deployment: Efficient companies with lower operational costs can compete more effectively on price.

Strategic Positioning Elements

• Pricing Power and Strategy: Market structure significantly affects Business class ticket prices; increased concentration leads to higher prices.
• Service Differentiation: Fageda (2003) highlights product differentiation as an essential feature of airline competition, allowing airlines to target different market segments.
• Alliance and Partnership Effects: Airline alliances can lead to higher economy and business fares, enhancing market power.

Competitive Position Indicators