Investigating Airports’ Market Power

airline_gameBy Volodymyr Bilotkach and Andreas Polk

The ongoing liberalization process in aviation affects all segments of the industry. Nowadays we are used to thinking about airlines as competitive firms as if the industry had not been regulated, and airlines had never been state-owned monopolies. But liberalization is more than that. It also affects the upstream production stages, such as the provision of ground-handling services or the supply of airport infrastructure. Whereas the former services are liberalized to a certain extent, airports are subject to regulation in most countries. The argument made here is that airports are regional monopolies and – as they provide necessary infrastructure to the airlines – they need to be regulated. But do airports in fact have market power? And if so, does market power exist with respect to all services an airport provides? If we were asked to evaluate whether a particular airport has market power, how are we to proceed with the analysis? In order to address these questions, it is necessary to apply general economic ideas to the context of the aviation industry. Due to particularities of airport markets, this is not a straightforward task. To address these issues, we first discuss how the assessment of market power of airports relates to the institutional contexts of the hosting countries. We then turn to some of what we think are the most important economic issues for the assessment of the market power of airports, and how these factors might affect the analysis of market power in a particular context of an airport under review.

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Can low-Cost Long-Haul Flight Operations be Profitable?

By Jost Daft and Sascha Albers

Hitherto, sustainably profitable low-cost operations can only be observed among short- to medium-haul airlines. Even though various carriers have launched attempts to extend the low-cost carrier (LCC) business model to long-haul flights (LHF, see the subsequent chapter for a definition), most of them failed before flight operations were initiated or went bankrupt after three to five years if flight operations started. However, the frequency with which new low-cost LHF airlines are founded is still considerable (see Tab. 1). Entrepreneurs as well as established airlines seeking new growth paths are among those in the industry that follow what seems to be a trial-and-error process in launching and operating LCC LHF airlines. This is not particularly surprising, since little systematic guidance on preconditions for and design options of a LCC LHF business model have been advanced. Rather, the scholarly literature has given only scant attention to the challenge of adapting the low-cost model to LHF, and the question of whether the low-cost long-haul model is economically viable has not been unanimously answered yet.

Key Factors Contributing to Management Strategy Development at Air Cargo Carriers

By Wouter Dewulf, Eddy Van de Voorde and Thierry Vanelslander

The air cargo industry can nowadays be judged as a mature industry, where strategy is being drafted far beyond the basic entrepreneurial framework in which an emerging industry tends to operate.This article deals with the key factors contributing to management strategy development at air cargo operators. The objectives of the management of these air cargo operators are being discussed and analyzed.  These objectives can be extremely diverse, and have different mixes of priorities over time. The management objectives determine the key drivers for the management strategy development. The management objectives are on their turn strongly influenced by the industrial environment created by the key drivers and trends of the air cargo industry.  Part of this article focuses on the influence of the key drivers and trends of the air cargo industry on management strategy development and analyzes the key drivers of the management’s strategic thinking within the air cargo industry. These key drivers are being grouped in three main strategic areas: product strategy, market strategy and network strategy, each with their own driving factors. The final part presents and compares a typology of two extreme (‘low cost’ versus ‘full service’ operator) air cargo operators’ management strategies.

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