Entry in Russian Airline Market1 1. Introduction
Entry in Russian airline market1 By Roman Chustuzian and Alexis Belianin International College of Economics and Finance Higher School of Economics, Moscow, Russia First Draft, April 2009 1. Introduction The Russian airline market is unique due to a combination of factors. Geographically, Russia is the largest country in the world, and air routes are by far the quickest (and sometimes unique) mean of transportation. Historically, this country has deeply enrooted tradition in airspace industry and air transport. Economically, this area of the national economy underwent the dramatic period of transition, combining terrific downfall in aircraft production (from over 200 per year in the late 1980s to less than 10 in the 2000s) combined with boost in the business of private carriers. Finally, this industry remains one of the most receptive to income shifts in the Russian economy: In 2000 – 2007, the Russian air passenger transportation industry grew by approximately 10% per year, which made new market entries attractive for airlines. On the other hand, the industry underwent significant consolidation from 393 airlines in 1994 to 198 in 2007, with over 50% of the market held by five largest players. That meant the airlines had to consider seriously the competitive implications of their moves and the moves of their rivals. Hence airlines needed to make sure that their strategic actions were optimal. Market entry is one of the key strategic actions airlines take. Like other researchers2, we model (airline) market entry with a discrete choice model. But unlike previous works, we focus on the Russian air passenger transportation (RAPT) industry. Since Russia is a developing country, the RAPT industry participants face higher uncertainty as compared to their counterparts in developed countries.
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