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

Paper search

Using your research question “What elements are needed to analyze the competitive position of an airline in the oligopolistic aviation market?”, we searched across over 126 million academic papers from the Semantic Scholar corpus. We retrieved the 500 papers most relevant to the query.

Screening

We screened in sources based on their abstracts that met these criteria:

• Study Focus: Does the study focus on commercial passenger airlines operating in oligopolistic aviation markets?
• Competitive Analysis: Does the research examine competitive positioning factors (such as market share, cost structure, or route network assessment)?
• Comparative Scope: Does the study analyze multiple airlines or provide comparative analysis between airlines?
• Study Type: Is the study an empirical study, case study, theoretical framework, systematic review, or meta-analysis focused on airline competition?
• Market Context: Does the study include explicit competitive context and market positioning implications?
• Study Scope: Does the study go beyond exclusively focusing on cargo airlines, technical aviation operations, airport operations, or regulatory frameworks without competitive analysis?

We considered all screening questions together and made a holistic judgement about whether to screen in each paper.

Data extraction

We asked a large language model to extract each data column below from each paper. We gave the model the extraction instructions shown below for each column.

• Market Structure and Competitive Environment:
  • Describe the specific market context of the airline study:
    • Identify the geographic market (e.g., Turkish international airline market, US domestic market)
    • Specify the number of airlines competing in the market
    • Characterize the market structure (e.g., oligopoly, number of competitors)
    • Note any specific market conditions (e.g., deregulation, hub-and-spoke networks)
• Competitive Analysis Approach:
  • Extract the specific methodological approach used to analyze competitive dynamics:
    • Research methodology (e.g., panel regression, content analysis)
    • Data collection period (start and end dates)
    • Sample size of airlines studied
    • Key analytical techniques or frameworks used
• Factors Influencing Competitive Performance:
  • Identify and list all factors found to impact airline competitive performance:
    • Positive influencing factors (e.g., firm maturity, fleet homogeneity)
    • Negative influencing factors
    • Specific performance metrics affected (e.g., market share, revenue passenger kilometers)
• Competitive Strategies and Actions:
  • Catalog the types of competitive actions identified in the study:
    • Types of competitive moves (e.g., schedule-based, price-related)
    • Strategies for market positioning
    • Differences in strategies between airline types (e.g., traditional vs. low-cost carriers)
• Performance Measurement Approach:
  • Detail the specific performance metrics used to assess competitive positioning:
    • Operational performance indicators
    • Financial performance indicators
    • Comparative performance measurement methods

Results

Characteristics of Included Studies

Analysis of the systematic review table suggests the following key points:

• Study Focus: Competition was the most common focus, appearing in 15 out of 25 studies. Other frequent focuses included pricing/price (4 studies), market structure (3 studies), market conduct (3 studies), performance (3 studies), and market power (3 studies).
• Methodology: Econometric analysis or modeling was the most common methodology, used in 6 studies. Empirical models or studies were used in 3 studies, and instrumental variables in 2 studies.
• Market Context: The most studied markets were Spain and the US (4 studies each), followed by Europe, Brazil, and Turkey (3 studies each). China was the focus of 2 studies.
• Key Variables: Pricing or price was the most commonly examined variable, appearing in 12 studies. Market structure was the second most common, examined in 8 studies.

Thematic Analysis

Market Structure and Competitive Dynamics

Key findings related to market structure and competitive dynamics include:

• 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.
  • Oum et al. (1993) note that intensifying hub-and-spoke networks is a key strategy for major US airlines to solidify market power.
  • Fageda (2004, 2005) highlight that these networks enable airlines to benefit from economies of density and scale in the Spanish market.
  • Oliveira and Oliveira (2016) discuss how these networks contribute to market concentration and potential market power abuse in the Brazilian airline industry.
• Market Concentration Impacts:
  • Gonenc and Nicoletti (2000) find that lower market concentration is associated with increased productive efficiency and lower fares across OECD countries.
  • Piga and Bachis (2007) suggest that while dominance within a route is associated with higher fares, a larger share within a city-pair does not necessarily facilitate market power.
  • Carlsson (2002) finds that increased market concentration leads to higher Business class ticket prices in European markets.
  • Cavalcante de Souza et al. (2017) highlight how high market concentration in the Brazilian market allows leading companies to control pricing.
• Entry Barriers and Competitive Responses:
  • Fageda (2003) notes that scale advantages of major airlines in the Spanish market create barriers for smaller airlines.
  • Cavalcante de Souza et al. (2017) identify high costs for acquiring aircraft and slots as significant entry barriers in the Brazilian market.
  • Kuljanin (2019) examines how the entry of low-cost carriers (LCCs) into the long-haul sector has altered the competitive landscape in the transatlantic market.

Resource-Based Competitive Factors

Key findings related to resource-based competitive factors include:

• Fleet Composition and Utilization:
  • Yaşar and Gerede (2023a) identify fleet homogeneity as a positive influencing factor for market share gain and operational performance.
  • Gundelfinger Casar and Millán (2017) find that average aircraft size negatively influences price, indicating that larger aircraft lead to lower prices, possibly due to economies of scale.
• 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, potentially leading to cost advantages.
  • Oum et al. (1993) note that intensifying hub-and-spoke networks is a key strategy for major airlines to enhance their competitive position.

Strategic Positioning Elements

Key findings related to strategic positioning elements include:

• Pricing Power and Strategy:
  • Carlsson (2002) finds that market structure significantly affects Business class ticket prices in European markets, with increased concentration leading to higher prices.
  • Piga and Bachis (2007) note that while dominance within a route is associated with higher fares, a larger share within a city-pair does not necessarily facilitate market power.
• Service Differentiation:
  • Fageda (2003) highlights product differentiation as an essential feature of airline competition, allowing airlines to target different market segments.
  • Kuljanin (2019) discusses how full-service carriers and low-cost carriers employ different strategies, with full-service carriers focusing on quality and network advantages while low-cost carriers compete primarily on price.

Competitive Position Indicators