IDEAS home Printed from https://ideas.repec.org/a/inm/ortrsc/v55y2021i2p532-548.html
   My bibliography  Save this article

A Network-Design Analysis of Airline Business Model Adaptation in the Face of Competition and Consolidation

Author

Listed:
  • Renan P. de Oliveira

    (Center for Airline Economics, Aeronautics Institute of Technology, São José dos Campos, SP CEP 12228-900, Brazil; School of Engineering and Built Environment, Griffith University, Nathan, Queensland 4111, Australia)

  • Alessandro V. M. Oliveira

    (Center for Airline Economics, Aeronautics Institute of Technology, São José dos Campos, SP CEP 12228-900, Brazil)

  • Gui Lohmann

    (School of Engineering and Built Environment, Griffith University, Nathan, Queensland 4111, Australia)

Abstract

By focusing on the intrinsic relationship between business models and network configurations in the airline industry, this paper develops a two-stage methodology to estimate the strategic drivers of network design of the major carriers in Brazil. The empirical approach decomposes their domestic network-building rationales into the ones adopted by virtual archetypical carriers. We consider the previously conceived low-cost, full-service, and regional carrier archetypes. Our main contribution is the development of a model that allows airlines’ networks to be strategically designed in a time-evolving pattern, reflecting a dynamically chosen blend of these archetypes. Moreover, we also consider the effects that mergers and acquisitions may have had in inducing changes in these blends. Our results suggest that all analyzed airlines have repositioned themselves through their trajectories to adopt a hybrid configuration, aiming at the intersection of at least two archetypical network-design rationales. Besides, the effects of consolidations point to certain diversions of the acquiring airlines’ domestic network-building rationales toward the ones of the acquired carriers, providing evidence that the consolidations may have served as stepping stones for market-repositioning moves.

Suggested Citation

  • Renan P. de Oliveira & Alessandro V. M. Oliveira & Gui Lohmann, 2021. "A Network-Design Analysis of Airline Business Model Adaptation in the Face of Competition and Consolidation," Transportation Science, INFORMS, vol. 55(2), pages 532-548, March.
  • Handle: RePEc:inm:ortrsc:v:55:y:2021:i:2:p:532-548
    DOI: 10.1287/trsc.2020.1025
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/trsc.2020.1025
    Download Restriction: no

    File URL: https://libkey.io/10.1287/trsc.2020.1025?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Milioti, Christina P. & Karlaftis, Matthew G. & Akkogiounoglou, Eleni, 2015. "Traveler perceptions and airline choice: A multivariate probit approach," Journal of Air Transport Management, Elsevier, vol. 49(C), pages 46-52.
    2. Daft, Jost & Albers, Sascha, 2015. "An empirical analysis of airline business model convergence," Journal of Air Transport Management, Elsevier, vol. 46(C), pages 3-11.
    3. Daft, Jost & Albers, Sascha, 2013. "A conceptual framework for measuring airline business model convergence," Journal of Air Transport Management, Elsevier, vol. 28(C), pages 47-54.
    4. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2008. "Bootstrap-Based Improvements for Inference with Clustered Errors," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 414-427, August.
    5. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of multivariate normal probabilities by simulation, with applications to maximum simulated likelihood estimation," Stata Journal, StataCorp LP, vol. 6(2), pages 156-189, June.
    6. Olivier Armantier & Oliver Richard, 2008. "Domestic airline alliances and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 875-904, September.
    7. Franke, Markus, 2004. "Competition between network carriers and low-cost carriers—retreat battle or breakthrough to a new level of efficiency?," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 15-21.
    8. Thompson, Samuel B., 2011. "Simple formulas for standard errors that cluster by both firm and time," Journal of Financial Economics, Elsevier, vol. 99(1), pages 1-10, January.
    9. Roucolle, Chantal & Seregina, Tatiana & Urdanoz, Miguel, 2020. "Measuring the development of airline networks: Comprehensive indicators," Transportation Research Part A: Policy and Practice, Elsevier, vol. 133(C), pages 303-324.
    10. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    11. Whyte, Randall & Lohmann, Gui, 2015. "The carrier-within-a-carrier strategy: An analysis of Jetstar," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 141-148.
    12. Charles Boguslaski & Harumi Ito & Darin Lee, 2004. "Entry Patterns in the Southwest Airlines Route System," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(3), pages 317-350, August.
    13. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    14. A. Belloni & D. Chen & V. Chernozhukov & C. Hansen, 2012. "Sparse Models and Methods for Optimal Instruments With an Application to Eminent Domain," Econometrica, Econometric Society, vol. 80(6), pages 2369-2429, November.
    15. Lohmann, Gui & Koo, Tay T.R., 2013. "The airline business model spectrum," Journal of Air Transport Management, Elsevier, vol. 31(C), pages 7-9.
    16. Papatheodorou, Andreas & Lei, Zheng, 2006. "Leisure travel in Europe and airline business models: A study of regional airports in Great Britain," Journal of Air Transport Management, Elsevier, vol. 12(1), pages 47-52.
    17. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    18. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    19. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2008. "Bootstrap-Based Improvements for Inference with Clustered Errors," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 414-427, August.
    20. Evans, William N & Froeb, Luke M & Werden, Gregory J, 1993. "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 431-438, December.
    21. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-764, May.
    22. Klophaus, Richard & Conrady, Roland & Fichert, Frank, 2012. "Low cost carriers going hybrid: Evidence from Europe," Journal of Air Transport Management, Elsevier, vol. 23(C), pages 54-58.
    23. de Wit, Jaap G. & Zuidberg, Joost, 2012. "The growth limits of the low cost carrier model," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 17-23.
    24. Martin Dresner & Robert Windle & Yuliang Yao, 2002. "Airport Barriers to Entry in the US," Journal of Transport Economics and Policy, University of Bath, vol. 36(3), pages 389-405, September.
    25. Gillen, David & Hazledine, Tim, 2015. "The economics and geography of regional airline services in six countries," Journal of Transport Geography, Elsevier, vol. 46(C), pages 129-136.
    26. Meghan Busse, 2002. "Firm Financial Condition and Airline Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 298-318, Summer.
    27. Gillen, David & Morrison, William G., 2005. "Regulation, competition and network evolution in aviation," Journal of Air Transport Management, Elsevier, vol. 11(3), pages 161-174.
    28. Frank Crowley & Declan Jordan, 2017. "Does more competition increase business-level innovation? Evidence from domestically focused firms in emerging economies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(5), pages 477-488, July.
    29. Morrell, Peter, 2005. "Airlines within airlines: An analysis of US network airline responses to Low Cost Carriers," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 303-312.
    30. Meghan R. Busse, 2002. "Firm Financial Condition and Airline Price Wars," Yale School of Management Working Papers ysm281, Yale School of Management.
    31. Mason, Keith J., 2001. "Marketing low-cost airline services to business travellers," Journal of Air Transport Management, Elsevier, vol. 7(2), pages 103-109.
    32. Fageda, Xavier & Suau-Sanchez, Pere & Mason, Keith J., 2015. "The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 289-296.
    33. Lindstädt, Hagen & Fauser, Bernd, 2004. "Separation or integration? Can network carriers create distinct business streams on one integrated production platform?," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 23-31.
    34. Graf, Luca, 2005. "Incompatibilities of the low-cost and network carrier business models within the same airline grouping," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 313-327.
    35. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, February.
    36. Erwin Blackstone & Andrew Buck & Simon Hakim, 2006. "Determinants of Airport Choice in a Multi-Airport Region," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(3), pages 313-326, September.
    37. Koo, Tay T.R. & Lohmann, Gui, 2013. "The spatial effects of domestic aviation deregulation: a comparative study of Australian and Brazilian seat capacity, 1986–2010," Journal of Transport Geography, Elsevier, vol. 29(C), pages 52-62.
    38. Yasar, Mahmut, 2013. "Political Influence of Exporting and Import-Competing Firms: Evidence from Eastern European and Central Asian Countries," World Development, Elsevier, vol. 51(C), pages 154-168.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Santos, Luca J. & Oliveira, Alessandro V.M. & Aldrighi, Dante Mendes, 2021. "Testing the differentiated impact of the COVID-19 pandemic on air travel demand considering social inclusion," Journal of Air Transport Management, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cho, Woohyun & Min, Dong-Jun, 2018. "Longitudinal examination of passenger characteristics among airline types in the US," Journal of Air Transport Management, Elsevier, vol. 72(C), pages 11-19.
    2. Magdalina, Ana & Bouzaima, Martin, 2021. "An empirical investigation of European airline business models: Classification and hybridisation," Journal of Air Transport Management, Elsevier, vol. 93(C).
    3. Jimenez, Edgar & Suau-Sanchez, Pere, 2020. "Reinterpreting the role of primary and secondary airports in low-cost carrier expansion in Europe," Journal of Transport Geography, Elsevier, vol. 88(C).
    4. Soyk, Christian & Ringbeck, Jürgen & Spinler, Stefan, 2017. "Long-haul low cost airlines: Characteristics of the business model and sustainability of its cost advantages," Transportation Research Part A: Policy and Practice, Elsevier, vol. 106(C), pages 215-234.
    5. Corbo, Leonardo, 2017. "In search of business model configurations that work: Lessons from the hybridization of Air Berlin and JetBlue," Journal of Air Transport Management, Elsevier, vol. 64(PB), pages 139-150.
    6. Ferrer-Rosell, Berta & Coenders, GermÃ, 2017. "Airline type and tourist expenditure: Are full service and low cost carriers converging or diverging?," Journal of Air Transport Management, Elsevier, vol. 63(C), pages 119-125.
    7. Fu, Xiaowen & Jin, Huan & Liu, Shaoxuan & Oum, Tae H. & Yan, Jia, 2019. "Exploring network effects of point-to-point networks: An investigation of the spatial patterns of Southwest Airlines’ network," Transport Policy, Elsevier, vol. 76(C), pages 36-45.
    8. Song, Woon-Kyung & Lee, Hyun Cheol, 2020. "An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study," Journal of Air Transport Management, Elsevier, vol. 82(C).
    9. Homsombat, Winai & Lei, Zheng & Fu, Xiaowen, 2014. "Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 1-16.
    10. Chao Ma, 2019. "Does capital structure differently affect incumbents' responses to entry threat and actual entry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 585-613, November.
    11. Morlotti, Chiara & Birolini, Sebastian & Cattaneo, Mattia & Redondi, Renato, 2020. "Introducing connecting flights in LCCs' business model: Ryanair's network strategy," Journal of Air Transport Management, Elsevier, vol. 87(C).
    12. O'Connell, John F. & Avellana, Raquel Martinez & Warnock-Smith, David & Efthymiou, Marina, 2020. "Evaluating drivers of profitability for airlines in Latin America: A case study of Copa Airlines," Journal of Air Transport Management, Elsevier, vol. 84(C).
    13. Zhang, Yahua & Sampaio, Breno & Fu, Xiaowen & Huang, Zhibin, 2018. "Pricing dynamics between airline groups with dual-brand services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 112(C), pages 46-59.
    14. Adiloğlu-Yalçınkaya, Leyla & Besler, Senem, 2021. "Institutional factors influencing business models: The case of Turkish Airlines," Journal of Air Transport Management, Elsevier, vol. 91(C).
    15. Genakos, C. & Grey, F. & Ritz, R., 2020. "Generalized linear competition: From pass-through to policy," Cambridge Working Papers in Economics 2078, Faculty of Economics, University of Cambridge.
    16. Dziedzic, Marcin & Njoya, Eric T. & Warnock-Smith, David & Hubbard, Nick, 2020. "Determinants of air traffic volumes and structure at small European airports," Research in Transportation Economics, Elsevier, vol. 79(C).
    17. Albers, Sascha & Daft, Jost & Stabenow, Sebastian & Rundshagen, Volker, 2020. "The long-haul low-cost airline business model: A disruptive innovation perspective," Journal of Air Transport Management, Elsevier, vol. 89(C).
    18. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
    19. Alderighi, Marco & Cento, Alessandro & Nijkamp, Peter & Rietveld, Piet, 2012. "Competition in the European aviation market: the entry of low-cost airlines," Journal of Transport Geography, Elsevier, vol. 24(C), pages 223-233.
    20. Amalia R. Miller, 2010. "Did the Airline Tariff Publishing Case Reduce Collusion?," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 569-586.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ortrsc:v:55:y:2021:i:2:p:532-548. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Matthew Walls (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.