A Model for Air Transport Market Competition Assessment: Airline and Alliance Perspective
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UNIVERSITY OF BELGRADE FACULTY OF TRANSPORT AND TRAFFIC ENGINEERING Jovana G. Kuljanin A MODEL FOR AIR TRANSPORT MARKET COMPETITION ASSESSMENT: AIRLINE AND ALLIANCE PERSPECTIVE Doctoral Dissertation Belgrade, 2019 UNIVERZITET U BEOGRADU SAOBRAĆAJNI FAKULTET Jovana G. Kuljanin MODEL ZA OCENU KONKURENCIJE NA TRŽIŠTU VAZDUŠNOG SAOBRAĆAJA: AVIOKOMPANIJE I ALIJANSE Doktorska disertacija Beograd, 2019 Adviser: D. Sc. Milica Kalić, Full professor, University of Belgrade – Faculty of Transport and Traffic Engineering Committee: D. Sc. Boris Begović, Full professor, University of Belgrade – Faculty of Law (Chairman) D. Sc. Michele Ottomanelli, Full professor, Polytechnic University of Bari, Italy D. Sc. Radosav Jovanović, Associate professor, University of Belgrade – Faculty of Transport and Traffic Engineering D. Sc. Manuel Renold, Associate professor, Zurich University of Applied Sciences, Switzerland Mentor: Dr Milica Kalić, redovni profesor, Univerzitet u Beogradu – Saobraćajni fakultet Članovi komisije: Dr Boris Begović, redovni profesor, Univerzitet u Beogradu – Pravni fakultet (predsednik komisije) Dr Michele Ottomanelli, redovni profesor, Politehnički univerzitet u Bariju, Italija Dr Radosav Jovanović, vanredni profesor, Univerzitet u Beogradu – Saobraćajni fakultet Dr Manuel Renold, vanredni profesor, Univerzitet primenjenih nauka u Cirihu, Švajcarska The thesis was supported by the Ministry of Education, Science and Technological Development, Republic of Serbia, through the Project TR36033 (2011-2019), A Support to Sustainable Development of the Republic of Serbia’s Air Transport System implemented by the Faculty of Transport and Traffic Engineering. A model for air transport market competition assessment: airline and alliance perspective Abstract: The emergence of low-cost carriers into long-haul sector has been a recent phenomenon in airline industry. The improvements in aircraft technology as well as regulatory changes enable the sustainability of low-cost long haul business model that permanently alter the landscape of competition and direction in which airline industry is currently heading. The thesis deals with several aspects of competition in long-haul market that is characterized by the presence of full-service network carriers that are typically members of large alliance groups and low-cost carrier that operates independently from any cooperation agreement. The thesis focuses on transatlantic market (between Europe and North America) as one of the most lucrative airline market in the world characterized by the great number of full-service network carriers and recent influx of few low-cost carriers. In order to properly investigate the impact of low-cost carrier on full-service network carriers on competitive routes, three models were developed in the thesis. The first model presents the original econometric model designed to examine the impact of low-cost carrier on full-service network carrier’s price and number of passengers in the predefined set of long-haul city-pair markets. The results of the pooled model that take into consideration several routes show that the presence of low-cost carrier tends to exert the negative impact on full-service carrier’s price. The results are more pronounced in the case of London-New York route as one of the densest route in the world with large number of possible airport-pair routes that enable the connections, but also generate additional competition among airlines. The model also examines the strategy of “capacity extension” applied by full-service carrier in order to diminish the effects of low-cost carriers incorporated through the modification of HHI index that directly depends of the seating density. The results show that the application of these counter-strategies could substantially mitigate the competitive pressure of low-cost carrier on particular route. The sensitivity analysis is conducted to determine how time reaction required to implement the abovementioned count-strategy could reduce the negative impact of low-cost carrier. As airlines aim to obtain as larger portion of the market as possible, the second model in the thesis was developed to predict the airline market share on the routes characterized by the presence of low-cost carrier, as one of the competitor in long-haul city-pair markets. The model is based on the application of fuzzy logic. Taking into account the key factors that determine airline market share (price and frequency of service), the proposed market share model can provide satisfactory results without taking into consideration passengers’ perceptions towards different aspects of airline service (that required extensive costly surveys). The estimation of the model is subsequently enhanced by the application of Bee Colony Optimization method for membership function fine tuning. The results reveal that strategy of increasing frequency remains the most powerful strategy in obtaining higher market shares, although the impact of reduced prices should not be neglected. Finally, in order to be competitive in the market, an airline has to sustain the cost advantage over its rivals. Measuring the airline efficiency becomes an inevitable step in assessing the airline competitive advantage. The fuzzy-based DEA CCR model is developed including the set of input and output variables carefully derived to reflect the current market outlook. In addition to fuzzy-DEA approach, the model also applies the Malmquist index that allows the comparison of airline efficiency over observed periods. The results show that major airlines which operate within alliances are generally more competitive than other mid-sized carriers, primarily due to the benefits derived from the economy of density. Keywords: airline competition, low-cost carriers, full-service network carriers, low-cost long-haul business model, transatlantic market, econometric models, airline market share, airline efficiency, fuzzy logic, fuzzy-based DEA CCR model, sensitivity analysis Scientific field: Transport and Traffic Engineering Specific scientific field: Aircraft Operations and Air Transport Planning and Management UDK: Model za ocenu konkurencije na tržištu vazdušnog saobraćaja: aviokompanije i alijanse Rezime: Proboj niskotarifnih aviokompanija na tržište dugolinijskog saobraćaja predstavlja relativno nov koncept u vazdušnom saobraćaju. Tehnološka poboljšanja u izradi vazduhoplova praćena regulatornim promenama omogućila su održivost niskotarifnog poslovnog modela u dugolinijskom saobraćaju i time trajno promenila konkurentske odnose na tržištu, ali i pravac u kome se celokupni sektor vazdušnog saobraćaja kreće. Doktorska disertacija razmatra nekoliko aspekata konkurencije na tržištu dugolinijskog saobraćaja na kome su prisutne kako tradicionalne aviokompanije, koje su uglavnom i članice neke od vodećih alijansi, tako i niskotarifne aviokompanije, koje posluju nezavisno od bilo kakvog korporativnog udruživanja. Fokus disertacije je na severnoatlantskom tržištu (tj. tržište između Evrope i Severne Amerike) koje se ubraja u najatraktivnija tržišta na svetu na kome je tradicionalno prisutan veliki broj tradicionalnih aviokompanija, ali od skoro, i neznatan broj niskotarifnih aviokompanija. U doktorskoj disertaciji su razvijena tri modela sa ciljem da se detaljno utvrdi uticaj koji niskotarifni prevozilac ima na svoje konkurente, tradicionalne prevozioce, na dugolinijskim rutama. Prvi model predstavlja originalno razvijeni ekonometrijski model koji za cilj ima utvrđivanje uticaja niskotarifnog prevozioca na cene karata i broj prevezenih putnika tradicionalnog prevozioca na unapred definisanom skupu dugolinijskih ruta koje povezuju određene parove gradova. Rezultati agregiranog modela koji istovremeno uzima u obzir nekoliko ruta ukazuju da prisustvo niskotarifnog prevozioca negativno utiče na cenu tradicionalnog prevozioca. U slučaju istog modela koji razmatra samo London – Njujork rutu (tj. ruta sa najvećim obimom saobraćaja na svetu koji se obavlja između nekoliko parova aerodroma), analiza pokazuje da je ovaj uticaj još više naglašen. Model takođe uzima u obzir i strategiju “povećanja kapaciteta” koju primenjuju tradicionalni prevozioci kako bi umanjili uticaje prisustva niskotarifnog prevozioca. Ova strategija je inkorporirana u model kroz modifikaciju HHI indeksa koji direktno zavisi od broja sedišta u putničkoj kabini. Rezultati ovog modela ukazuju na efikasnost primene ove kontrastrategije koja značajno ublažava konkurentski pritisak na određenoj ruti. Na kraju je sprovedena i analiza osetljivosti koja omogućava da se sagledaju efekti implementacije strategije tradicionalnog prevozioca u različitim vremenskim presecima. S obzirom na to da je jedan od osnovih ciljeva svake aviokompanije da ostvari što veći udeo na tržištu, u doktorskoj disertaciji je razvijen robusni model za predikciju učešća na tržištu aviokompanija koje obavljaju saobraćaj na dugolinijskim linijama na kojima postoji konkurencija od strane niskotarifnog prevozioca. Model je baziran na primeni fazi logike. Uzimajući u obzir ključne faktore koji određuju udeo na tržištu posmatrane aviokompanije, predloženi model daje zadovoljavajuće rezultate bez potrebe uzimanja u obzir preferencije putnika prema određenim aspektima usluge za koja su vrlo često potrebna skupa anketiranja. Prediktivna svojstva modela su poboljšana primenom optimazacije kolonijom pčela, metaheuristike koja je korišćena za fino podešavanja funkcija pripadnosti. Rezultati modela ukazuju da povećanje frekvencije predstavlja najpogodniji način kojim se postiže