Competition in the Aviation Industry

Please write me a four page essay on a current topic that airport managers are dealing with today.

Some topic ideas that you can write on are: Safety (SMS), security, environmental issues, planning, construction, tenant relations, technology developments and more.
Please use at least four sources for your report and footnote them properly.

ANSWER

Competition in the Aviation Industry

Introduction

The current expansion of global trade and tourism has increased travel and employment opportunities and prosperity among billions of individuals worldwide, making the aviation industry the most significant industry. Air transport is an economically important business entailing all aspects of the aviation value chain such as engine and aircraft manufacturers, air traffic and airport management system, and fuel suppliers with more than 3 billion passengers using air transport in 2016. However, the current situation of the air transport market is associated with high level of competition and drastic changes prompted by technological innovations, industry consolidation, dynamic technology, and forces of deregulation. This paper explores the topic of competition that airport managers are dealing with today.

The aviation sector is growing at a faster rate, and firms are attracting customers by lowering fare charges; hence competition is becoming tougher. The small aviation companies face risks of shakeout from the industry as the top players are eager to take advantage of possible takeovers to increase their market share and financial position in the long run. Competition policy is one of the key topics that airport managers and state regulatory bodies are becoming more concerned with competition in the face of consumer satisfaction. However, customers are gaining from an unpredicted combination of access, choice, competition, and affordability (Sharma, Mohita Gangwar and Singh 150).  The prevailing competitive environment drives airline firms to innovate, develop a new and wide range of services and choices to enable customers to customize their travel needs and acquire the most memorable experience. The airport managers are directing their attention to providing quality and satisfying services to customers. The leading global airlines are continuously competing with each other, which has led to improved airline services that benefit the consumers. Competition in the air transport industry is becoming more pronounced due to the entry and popularity of small airlines characterized as low-cost airlines.

Although deregulation of the aviation industry in 1979 has resulted in tremendous growth, it is established to encourage ineffective competition among aviation firms, which has not benefited all travelers.  For example, over the last two decades, U.S’s leading airlines have collapsed or have been absorbed by other firms. Even though profits are volatile, most sectors characterized by volatile profits operate with limited government regulation (Wang et al., 12). Furthermore, free markets operate well for sectors with high fluctuations since these fluctuations are forms of incentives for businesses to innovate to meet the changes in operating costs and demands.  The Southwest airline company is an excellent example of an aviation business that took advantage of the fluctuations to innovate and charge its customers lower fare, provide a uniform fleet, and reduce the turnaround time (Sharma, Mohita Gangwar, and Singh 150). All operations of an airport are necessary because the air transport industry is price driven and highly competitive; the services provided should be attractive so that the demand can be resilient even during periods of economic recession.

The level of competition faced by a firm within the aviation industry is highly dependent on the business environment in which the firm operates.  Some of the primary market features that determine the level of competition are vertical connections with other airlines, scarcity of capacity, and the significance that a firm places on its hub traffic. Congestion at the airports is a competition factor through its pricing power (Wang et al., 15). A congestion charge is a means of achieving useful application of low capacity. An optimal congestion charge for an airport is possible to vary from the efficient charge. Still, it can also result in higher welfare of the customers as compared to a situation where congestion-related charges do not exist.  Because regulation is costly, permitting airports to use congestion-related charges is effective. However, special care should be exercised in determining the incentives to invest (Luke et al. 167). Whereas complete vertical separation of aviation companies is not necessary to sustain efficient competition, exclusive access for incorporating these companies should be avoided. Vertical integration can also lead to significant market power in specific market segments that is likely to justify the type of policy intervention to counteract competition. Hub functions for airlines may lead to market power. Most airport managers’ interest is to sustain competition through secondary airports, and establishing hub-and-spoke channels is a significant means to counteract this market power.

Airport managers are currently considering various policies to improve their competitiveness in the industry and ensure effective competition that brings a higher level of consumer satisfaction is achieved. Adopting a sustainable competitive strategy is one option that airport managers consider to counteract competition and improve efficiency in this industry.  Changing the aviation industry framework is an efficient way of facilitating cost reduction, traffic growth, and improving aviation service quality (Su, Min, et al., 40).  The aviation industry framework can be changed through firm acquisition and mergers, strategic alliances, and outsourcing services. Since the aviation industry’s profitability is considered low and volatile, companies should innovate and adopt cost-related policies to avoid being outcompeted.  Even though a few airlines are continuously gaining profit and growth, the aviation sector is considered highly risky. Most business investors are reluctant to venture into the industry. Therefore, it is significant to identify the main benefits of efficient competition within the aviation sector before developing strategies to counteract competition’s adverse effects (Wang et al., 80). Competition results in developing and implementing substantial strategies that promote future market growth, but air transport companies should design optimal means of fighting and attacking competitors.

Additionally, airport managers are considering adopting ownership frameworks that take advantage of the existing competition rather than perceiving it as a threat and introducing further regulation when the results are not satisfactory.  The range of competition within the air transport industry is wider-ranged than as predicted by airport policymakers and managers, leading to airport competition problems. Minimizing this sector’s regulation will reduce the risk of discouraging innovative business frameworks by airport authorities.

Conclusion

The aviation sector currently operates in a business environment where prices and airline routes are set based on the prevailing market situations. Still, primary inputs such as airport boarding entries are established using non-market conditions. Whereas the volatility of profits is high in the aviation industry, falling prices, reduced concentration, and innovation are the positive impacts of competition; airport managers have to develop policies to prevent unhealthy competition that hinder their success.

Works cited

Lüke, Karl-Heinz, Johannes Walther, and Daniel Wäldchen. “Innovation management methods in the aviation industry.” International Conference on Innovations for Community Services. Springer, Cham, 2018. https://www.springerprofessional.de/en/innovation-management-methods-in-the-aviation-industry/15825218

Sharma, Mohita Gangwar, and K. N. Singh. “Servitization, coopetition, and sustainability: An operations perspective in aviation industry.” Vikalpa 42.3 (2017): 145-152.

Su, Min, et al. “The competition effects of low-cost carriers and high-speed rail on the Chinese aviation market.” Transport Policy 95 (2020): 37-46.

Wang, Jiaoe, David Bonilla, and David Banister. “Air deregulation in China and its impact on airline competition 1994–2012.” Journal of Transport Geography 50 (2016): 12-23. https://www.sciencedirect.com/science/article/pii/S0966692315000472

Wang, Kun, Anming Zhang, and Yahua Zhang. “Key determinants of airline pricing and air travel demand in China and India: Policy, ownership, and LCC competition.” Transport Policy 63 (2018): 80-89. https://ideas.repec.org/a/eee/trapol/v63y2018icp80-89.html

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