Airline competition and government regulation during a global pandemic: A retrospective analysis

The COVID-19 pandemic had an unprecedented and devastating impact on the aviation industry. Although the pandemic has subsided, there are many lessons to learn from this experience that could be useful for navigating the possible future recurrence of similar events. In this study, we develop differential game models to investigate airlines’ competition strategies during the pandemic, and governments’ regulations (i.e., travel restriction and travel bubble policies) are examined and compared. We find the travel bubble policy to be superior to the travel restriction policy in terms of social welfare. We also present the conditions under which governments should bail out airlines to avoid potential bankruptcies. Furthermore, our models are extended to incorporate ambiguity in key information regarding the pandemic, such as when governments and airlines do not know the infection-recovery ratio of the pandemic exactly. We find that improving pandemic information (e.g., using measures such as COVID passports) can benefit social welfare only when the targeted infection is low. We conclude that reducing ambiguity performs better under the travel restriction policy than the travel bubble policy.