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Summary, Conclusion, and Policy Recommendations

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Efficiency and Competitiveness of International Airlines

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Abstract

This chapter summarizes the findings of the previous chapters on production and cost function analyses and proposes the policy implications based on the key findings. The results confirmed that the airlines are successful in achieving production efficiency over the period studied but are less successful in cost efficiency. Airline size showed a progressive effect on the level of output efficiency, but larger airlines were not more competent than their smaller counterparts with respect to cost efficiency. Our main findings show that carriers based in the Asia region in general are more capable of achieving production efficiency than carriers based in Europe and North America, while the cost model reveals the opposite result. Airlines need to be more strategic about the utilization of their resources when making operating decisions such as planning flying frequencies, stage length, and destinations. Market share is important in achieving higher production efficiency, and alliances are also progressive for production efficiency. Airline market liberalization also helps airlines to attain production efficiency, but the airlines based in the less liberalized markets show better performance in their cost management. Domestic competition and price strategy are important elements and their implications differ again in the production and cost function perspectives.

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Notes

  1. 1.

    See Appendix 1.1 US carriers’ exit and entry.

  2. 2.

    According to the WTO, it is the exclusive right of a country to operate air traffic within its territory.

  3. 3.

    The Air Services Agreements Projector (ASAP) is an analytical tool that enables users to obtain information on a Signatory's network of bilateral Air Services Agreements (ASAs) and correlated traffic flows. It is based on the QUASAR methodology devised by the WTO Secretariat in 2006 to assess the openness of bilateral ASAs. A comprehensive account of the methodology can be found in document S/C/W/270/Add.1, dated 30 November 2006 (see in particular, pages II.644 to II.667). This version of ASAP is based on 2011 data. It builds on several information sources. On the regulatory side, it relies on bilateral ASAs that are included in the World Air Services Agreements (WASA) database of the International Civil Aviation Organization (ICAO) (last consulted on 31 August 2012). This data is complemented by ASAs that were submitted by Australia, Guatemala and New Zealand in 2007 in the context of the second GATS air transport Review, and information obtained from the WTO's Trade Policy Review Secretariat Reports of China (WT/TPR/S/264/Rev.1, dated 20 July 2012), Colombia (WT/TPR/S/265/Rev.2, dated 1 August 2012), Guyana (WT/TPR/S/218/Rev.1, dated 10 August 2009), Japan (forthcoming), and Norway (WT/TPR/S/205/Rev.1, dated 16 January 2009), as all these reports contain comprehensive ASA data (see below, for the calculation of the ALI). On the traffic side, it makes use of 2011 scheduled passenger traffic statistics kindly provided by the International Air Transport Association (IATA). In view of its commercial value and confidentiality, IATA statistics are presented as ranges, rather than exact figures.

  4. 4.

    The WTO Secretariat in consultation with a panel of professionals, academics, and air transport negotiators devised ALI.

  5. 5.

    For the details, see Pearson and Merkert (2014), Airlines-within airlines: A business model moving East.

  6. 6.

    According to the prospects for 2015 by UNWTO, Asia and the Pacific and the Americas will have +4 to +5 % growth in 2015, followed by Europe (+3 to +4 %), the Middle East (+2 to +5 %) and Africa (+3 to +5 %).

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Author information

Authors and Affiliations

  1. Jönköping International Business School, Jönköping, Sweden

    Almas Heshmati

  2. Sogang University, Seoul, Korea, Republic of (South Korea)

    Jungsuk Kim

Authors
  1. Almas Heshmati
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  2. Jungsuk Kim
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Corresponding author

Correspondence to Jungsuk Kim .

Appendices

Appendix 6.1: Mean of Air Liberalization Index (ALI) by Countries, 1998–2012

Code

Airline

Country

Mean ALI

Openness rank

Output rank

PRTE efficiency rank

CRTE efficiency rank

AA

American Airlines

United States

8776.633

1

1

11

39

AC

Air Canada

Canada

2160.6

16

12

19

19

AF

Air France

France

2780.4

12

6

8

32

AI

Air India

India

2200.4

15

29

18

17

AV

AVIANCA

Colombia

716.9

37

39

37

6

AY

Finn air

Finland

1313.4

31

34

33

10

AZ

Alitalia

Italy

1186.7

32

27

28

26

BA

British Airways

United Kingdom

4534.9

5

5

4

29

CA

Air China

China

1523.8

27

15

14

30

CX

Cathay Pacific Airways

Hong Kong SAR, China

2576.9

13

8

3

20

CZ

China Southern Airlines

China

1523.8

28

19

20

35

DL

Delta Air Lines

United States

8583.9

2

4

13

34

EI

Air Lingus

Ireland

630.1

39

38

39

2

GA

GARUDA

Indonesia

1054.8

33

32

29

4

IB

IBERIA

Spain

1891.2

23

17

23

23

JJ

TAM Linhas Aereas

Brazil

1869.8

25

31

31

14

JL

Japan Airlines

Japan

2017.8

17

10

7

33

KE

Korean Air

Korea

1717.1

26

9

1

18

LA

LAN Airlines

Chile

1887

24

23

24

9

LH

Lufthansa

Germany

3345.9

10

3

2

37

LX

SWISS Air

Switzerland

4281

6

21

25

13

LY

El Al

Israel

951

35

30

36

1

MH

Malaysia Airlines

Malaysia

1952.2

21

16

10

22

MU

China Eastern Airlines

China

1523.8

29

20

15

27

NH

ALL Nippon Airways

Japan

2017.8

18

14

17

38

NZ

Air New Zealand

New Zealand

3842.5

8

24

16

16

OS

Austrian

Austria

1904.8

22

33

34

12

PR

Philippine Airlines

Philippines

1483.7

30

35

22

3

QF

Qantas Airways

Australia

4198.2

7

11

6

31

QR

Qatar Airways

Qatar

995

34

36

38

5

SK

SAS Scandinavian Airlines

Sweden

2865.2

11

25

30

25

SQ

Singapore Airlines

Singapore

3701.5

9

7

5

21

SU

Aeroflot Russian Airlines

Russian Federation

2562.8

14

28

26

7

SV

Saudi Arabian Airlines

Saudi Arabia

710.6

38

22

21

15

TG

Thai Airways

Thailand

1962

20

13

9

24

TK

Turkish Airlines

Turkey

1997.3

19

26

27

11

TP

TAP Portugal

Portugal

842.4

36

37

35

8

UA

United Airlines

United States

8583.9

3

2

12

36

US

US Airways

United States

8583.9

4

18

32

28

  1. Source www.wto.org/asap/index.html
  2. Note We accumulated the ALI index for each country over the period of 1998–2012 who signed the bilateral agreement with other countries and the 2011 year data was replicated for the 2012

Appendix 6.2: Types of Air Services Agreements (ASA)

Type

Freedoms

Designation

Withholding/ownership

Tariffs

Capacity

A

3rd and 4th

Single designation

Substantive ownership and effective control

Double approval

Predetermination

B

3rd and 4th

Multi designation

Substantive ownership and effective control

Double approval

Predetermination

C

3rd, 4th, 5th

Single designation

Substantive ownership and effective control

Double approval

Predetermination

D

3rd, 4th, 5th

Single designation

Substantive ownership and effective control

Double approval

Bermuda 1

E

3rd, 4th, 5th

Multi designation

Substantive ownership and effective control

Double approval

Predetermination

F

3rd, 4th, 5th

Multi designation

Substantive ownership and effective control

Double approval

Bermuda 1

G

3rd, 4th, 5th

Multi designation

Substantive ownership and effective control

or community of interest or principal of business

Free pricing or Double approval

Free determination

I

Incomplete ICAO coding

If either

“n/a”

“n/a”

“Other”

O

All other combinations

     
  1. Source http://www.wto.org/asap/resource/data/html/methodology_e.htm

Appendix 6.3: Air Liberalization Index (ALI) Weighting Systems

Element

Air Liberalization Index

Standard

5th+

OWN+

DES+

Grant of rights

    

Fifth freedom

6

12

5

 

Seventh freedom

6

5

5

5.5

Cabotage

6

5

5

5.5

Capacity

    

Predetermination

0

0

0

0

“Other restrictive”

2

1.5

1.5

1.5

Bermuda 1

4

3.5

3.5

3.5

“Other liberal”

6

5

5

5.5

Free determination

8

7

7

7.5

Tariffs

    

Dual approval

0

0

0

0

Economy of origin

3

2.5

2.5

2.5

Dual disapproval

    

Zone pricing

8

4

7

3.5

7

3.5

7.5

3.5

7

6

6

6

Free pricing

8

7

7

7.5

Withholding

    

Substantial ownership and effective control

0

0

0

0

Community of interest

4

3.5

7

3.5

Principal place of business

8

7

14

7.5

Designation

    

Single designation

0

0

0

0

Multiple designation

4

3.5

3.5

7.5

Statistics

    

Exchange of statistics

0

0

0

0

No exchange of statistics

1

1

1

1

Cooperative arrangement

    

Not allowed

0

0

0

0

Allowed

3

2.5

2.5

2.5

Total

50

50

50

50

  1. Source http://www.wto.org/asap/resource/data/html/methodology_e.htm
  2. Note Weighted Air Liberalization Index (WALI): The WALI is a synthetic measure of the openness of the air transport policy of a given Signatory. It is calculated as an average of the ALIs of all the ASAs concluded by that Signatory, weighted by the respective traffic they cover. WALIs are computed for all four ALI weighting systems
  3. WASA: WASA refers to the World Air Services Agreements database produced by the International Civil Aviation Organization (ICAO)
  4. ASAP traffic: The traffic covered by the ASAs concluded by the Signatory concerned, as captured in ASAP
  5. ASAP traffic share: The traffic covered by the ASAs concluded by the Signatory concerned as a share of the total traffic covered by the ASAs included in ASAP

Appendix 6.4: Airlines with Within Airline Operating Status

Country

Airline within airline

Ownership

Start

Germany

Germanwings

100 % by Lufthansa

2002

Belgium

Jetairflya

100 % by TUI

2005

Netherlands

Transavia

100 % by KLM

2003

France

Transavia

60 % by Air France

2007

Czech Republic

SmartWings

100 % by Travel service

2004

Spain

Iberia Express

100 % by IAGD

2012

Spain

Vueling

46 % by Iberia

2004

Italy

Air One

100 % by Alitalia

2010

Italy

Blu-Express

100 % by Blue Panorama

2005

Turkey

AnadoluJet

100 % by Turkish

2008

South

Africa Kulula

90 % by Comair

2001

South

Africa Mango

100 % by South African

2006

India

Air India Express

100 % by Air India

2005

India

Jet Konnect

100 % by Jet Airways

2009

India

Kingfisher Redi

100 % by Kingfisher

2008

Thailand

Nok Air

49 % by Thai Airways

2006

Malaysia

Firefly

100 % by Malaysia Airlines

2007

Singapore

Jetstar Asia

49 % by Qantas

2004

Singapore

Tiger

100 % by Tiger Airways hold

2004

Singapore

Scoot

100 % by Singapore Airlines

2012

Vietnam

Jetstar Pacific

100 % by Vietnam Airlines

2008

Indonesia

Citilink

100 % by GARUDA

2008

Philippines

AirPhil Express

100 % by Philippine Airlines

2010

South Korea

Air Busan

46 % by Asiana

2008

South Korea

Jin

100 % by Korean Air

2006

Japan

Air Japan

100 % by All Nippon

2003

Japan

JAL express

100 % by Japan Airlines

1998

Japan

Peach

39 % by All Nippon

2012

Japan

Jetstar

42 % by All Nippon

2012

Australia/NZ

Jetstar

100 % by Qantas

2003

  1. Source Pearson and Merkert (2014, Table 2 “Highlights of presently-operating AWAs”)

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Heshmati, A., Kim, J. (2016). Summary, Conclusion, and Policy Recommendations. In: Efficiency and Competitiveness of International Airlines. Springer, Singapore. https://doi.org/10.1007/978-981-10-1017-0_6

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