Economic on Air Transport Management

Topics: Airline, Southwest Airlines, Federal Aviation Administration Pages: 25 (8418 words) Published: August 3, 2009

4.1Aviation as Oligopolies2
4.1.1Number of Carriers and Market Share2
4.1.2High Barriers to Entry4
4.1.3Economic of Scale6
4.1.4Growth through Merger9
4.1.5Mutual Dependence10
4.1.6Price Rigidity and Non-price Competition11
4.2Government Financial Assistance13
4.3Technology Cycle19
4.3.1High Technology Turnover19
4.3.3Clean Sky Joint Technology Initiative Research 23 Program by the European Commission
4. Human Resource and Fuel Consumption28
4.4.1Human Resource28
4.4.2Fuel Consumption31
4.5Competitive Advantages33
4.5.1Linkages between these Features and Airlines 34
Competitive Advantage
2. Porter’s 5 Force Analysis in Airline Industry37 4.6Sensitivity to Economy Fluctuations38

Chapter 4: Economic Characteristics of the Airlines

4. Introduction
Economists usually describe the certificated airline industry as closely approximating an oligopolistic market structure. An oligopoly is an industry composed of a few firms producing either similar or differentiated products. Oligopolistic industries normally are characterized by high barriers to entry. There usually take the form of substantial capital requirement, the need for the technical and technological know-how, and control of patent right, and so forth. In addition to few sellers, a similar product, and high obstacles to entry, oligopolistic industries tend to share several other characteristics such as: a) Substantial Economic of Scale

By economy of scale, economists mean decreases in a firm’s long-term average cost s the size of its operations increases. Firms industries typically require large-scale production to obtain low unit costs. b) Growth Through Merger

Many of the oligopolies that exist today have resulted from mergers of competing firms-in mergers that may date back to the late 19th or early 20th century. The purpose of most mergers is to gain a substantial increase in market share, greater economies of scale, more buying power in the purchase of resources, and various other advantages that smaller firms do not possess to the same extent. c) Mutual Dependence

When there are only a few firms in a market, it matters very much too each firms what its rivals do. Economists call this situation mutual dependence. The small number of seller in an oligopolistic industry makes it necessary for each seller to consider the reactions of competitors when setting prices. d) Price Rigidity and Non-price Competition

In an oligopolistic industry, firms find it more comfortable to maintain constant prices and to engage in various forms of non-price competition, such as advertising and customer service, to hold, if not increase, their market shares.

4.1Aviation as Oligopolies
Let’s compares and take a look at several unique characteristics in aviation industry with the general characteristics of oligopolies as a background. There are six unique characteristics in aviation industry which are Number of Carriers and Market Share, High barriers to Entry, Economies of Scale, Growth through Merger, Mutual Dependence and Price Rigidity and Non-price Competition. 4.1.1Number of Carriers and Market Share

With the easing of CAB regulations and passage of the Airline Deregulation Act, the industry entered an era of intense competition. Major airlines and the former local-service carriers began competing with one another; charter carriers moved into scheduled service; former intrastate carriers, such as Air Florida, Pacific Southwest Airlines, and Southwest, moved into interstate markets; and many new firms began offering service. As a...
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