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: 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), and performance (3 studies).

• Methodology: Econometric analysis or modeling was the most common methodology, used in 6 studies.

• Market Context: The most studied markets were Spain and the US (4 studies each), followed by Brazil and Turkey (3 studies each).

• Key Variables: Pricing or price was the most commonly examined variable, appearing in 12 studies.

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. Oum et al. (1993) note that these networks enhance competitive position.

• Market Concentration Impacts: Studies find that lower market concentration is associated with increased productive efficiency and lower fares.

• Entry Barriers and Competitive Responses: The presence of low-cost carriers (LCCs) has altered the competitive landscape, impacting pricing and market share dynamics.

Resource-Based Competitive Factors

• Fleet Composition and Utilization: Fleet homogeneity is identified as a positive influencing factor for market share gain.

• Financial Resource Deployment: Efficient companies with lower operational costs can compete more effectively.

Strategic Positioning Elements

• Pricing Power and Strategy: Market structure significantly affects pricing strategies, with increased concentration leading to higher prices.

• Service Differentiation: Product differentiation strategies allow airlines to target different market segments.

Competitive Position Indicators

• Market Concentration: Measured through the Herfindahl-Hirschman Index (HHI). Higher concentration may lead to increased market power.
• Operational Efficiency: Approaches include load factors and aircraft utilization to assess cost position and profitability.

References

• Berry, S. T. (1990). Airport Presence as Product Differentiation.
• Oum, T., Zhang, A., & Zhang, Y. (1993). Inter-Firm Rivalry and Firm-Specific Price Elasticities in Deregulated Airline Markets.
• Yaşar, M., & Gerede, E. (2023). Results of competitive dynamics: Examination of the factors determining the operational and financial performance of airlines: The case of the Turkish international airline market.