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.

Papers identified with Elicit search

n = 500

Papers screened using: Study Focus, Competitive Analysis, Comparative Scope, Study Type, Market Context, Study Scope

n = 500
Papers screened out
n = 475

Papers included for extraction
n = 25

Data extraction

Market Structure and Competitive Environment

• Geographic market: Various (e.g., US, Brazil, China, Turkey)
• Number of airlines: Insufficient information in some studies
• Market structure: Oligopoly with varying concentration levels
• Specific market conditions: Factors such as deregulation, hub-and-spoke systems, barriers to entry.

Competitive Analysis Approach

• Research methodology: Ranges from econometric modeling to content analysis
• Data collection period: Various, primarily 1990-2023
• Sample size of airlines studied: Not uniform, varies by study
• Key analytical techniques: Econometric techniques were prevalent

Factors Influencing Competitive Performance

• Positive influencing factors: Fleet homogeneity, route optimization, financial resources
• Negative influencing factors: Increasing market concentration potentially leading to higher fares
• Specific performance metrics affected: Market share, revenue passenger kilometers, prices

Competitive Strategies and Actions

• Types of competitive moves: Pricing strategies, service differentiation, schedule-based actions
• Strategies for market positioning: Use of alliances, capacity management between LCCs and traditional airlines
• Differences in strategies between airline types: Full-service versus low-cost carriers had varying competitive responses

Performance Measurement Approach

• Operational performance indicators: Load factors, aircraft utilization
• Financial performance metrics: Revenue Passenger Kilometers (RPK), net profit/loss
• Comparative measurement methods used across various studies.

Results

Characteristics of Included Studies

• Study Focus: Competition was the most common focus, appearing in 15 out of 25 studies.
• Methodology: Econometric analysis or modeling was used in multiple studies, varying by region and market context.
• Market Context: Focus areas included primarily the US and Spanish markets, with others noted in Brazil and China.
• Key Variables: Pricing and market structure were among the most examined variables.

Thematic Analysis

Market Structure and Competitive Dynamics

Key findings related to market structure and competitive dynamics include:

• Hub-and-Spoke Network Effects: Increase market power and cost efficiency.
• Market Concentration Impacts: Dominance in routes may adversely impact pricing; varying effects noted by region.
• Entry Barriers: Presence of low-cost carriers significantly alters competitive strategies, especially against traditional airlines.

Resource-Based Competitive Factors

Key findings include:

• Fleet Composition and Utilization: Fleet age and type affect operational effectiveness.
• Route Optimization: Impacts market share and operational efficiency.
• Financial Resource Deployment: Resource management critical for competitive sustainability.

Strategic Positioning Elements

Key findings include:

• Pricing Power and Strategy: Striking balance between market power and competitive pricing is essential for profitability.
• Service Differentiation: Tailoring offerings to specific market segments enhances competition.
• Alliance and Partnership Effects: Collaborations enhance fare structures and market presence.

Competitive Position Indicators

Indication of types of competitive impacts shows diversity across methodologies with completely varying metrics used in studies.

References

• A selection of relevant studies cited with links to further access, detailing their specific findings.