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.

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)

Look for this information in the introduction or methodology sections. If multiple market characteristics are mentioned, list all of them. If information is incomplete, note "insufficient information" and provide any partial details available.

• 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

Locate this information primarily in the methodology section. If multiple approaches are used, list all. Ensure to capture the specific analytical techniques that were used to examine competitive positioning.

• 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)

Extract this information from the findings/results section. Ensure to note both statistically significant positive and negative factors. If quantitative impact is provided (e.g., correlation strength), include that information.

• 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)

Search the results and discussion sections for explicit mentions of competitive strategies. If specific examples are provided, include them. Note the frequency or prevalence of different strategy types if such information is available.

• Performance Measurement Approach:

Detail the specific performance metrics used to assess competitive positioning:

• Operational performance indicators
• Financial performance indicators
• Comparative performance measurement methods

Locate this information in the methodology and results sections. Ensure to capture both the metrics used and how they were calculated or compared across airlines. If multiple performance dimensions are analyzed, list all of them.

Results

Characteristics of Included 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.
  • Najda (2003) argues that the presence of LCCs is a more important determinant of route competitiveness than traditional measures of market concentration.
  • Kuljanin (2019) describes how full-service carriers use strategies such as “capacity extension” to mitigate the impact of LCCs.
  • Yaşar and Gerede (2023b) provide a detailed analysis of competitive moves, noting differences in strategies between traditional and low-cost carriers.

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.
  • Oliveira and Oliveira (2016) discuss how traffic density and route-airport dominance influence market concentration.
• Financial Resource Deployment:
  • Yaşar and Gerede (2023a) identify financial resources as a positive influencing factor for market share gain.
  • Zhang (2020) highlights the importance of cost management in the competitive landscape of China’s civil aviation industry, noting that high costs, particularly from aviation fuel and airport fees, significantly impact profitability and competitive performance.
  • Cavalcante de Souza et al. (2017) note that efficient companies with lower operational costs can compete more effectively on price, thereby increasing their market share.

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.
  • Oum et al. (1993) mention the use of "skilful dynamic pricing and seat allocation techniques" as a competitive tool employed by major US airlines.
  • Dittmann (2013) discusses the application of yield management in the Chinese domestic market as a key pricing strategy.
• Service Differentiation:
  • Fageda (2003) highlights product differentiation as an essential feature of airline competition, allowing airlines to target different market segments.
  • Cavalcante de Souza et al. (2017) provide specific examples of service differentiation strategies, including shorter connection times, loyalty programs, onboard meals, and flexible baggage policies.
  • 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.
• Alliance and Partnership Effects:
  • Oum et al. (1993) mention the use of commission overrides to travel agents as a strategy to enhance market position.
  • Gonenc and Nicoletti (2000) note that airline alliances can lead to higher economy and business fares, suggesting that these partnerships can enhance market power and pricing ability.
  • Yaşar and Gerede (2023a) find that competing in the same alliance negatively affects Revenue Passenger Kilometers (RPK), a key operational performance metric.
  • Kuljanin (2019) discusses how major airlines benefit from alliances, using them as a tool to compete against the emerging threat of low-cost carriers in long-haul markets.

Competitive Position Indicators

Conclusion

This research is based on the literature on competitive dynamics. It classifies competitive actions in the airline market and evaluates them in the context of the competitor pair. Competitive actions were obtained through content analysis and data mining. Unlike previous research, the competitive actions obtained were divided into themes based on Doganis ' (2006) classification of airline product components. This study analyses the competitive actions of 26 airlines operating in the Turkish international airline market between 2014 and 2018. The competitive actions were classified based on their types, and the study reveals the airlines' preferences. The results indicate that traditional airlines tend to rely more on schedule-based actions. Furthermore, the most commonly implemented measures by airlines are related to scheduling and pricing. An examination of these measures based on the competition between airlines reveals an imbalance in rivalry.