Air Asia: Penetrating into the South African Airline Industry
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World Bank. Air Transport and Energy Efficiency. Zhang, A. Hanaoka, H. Inamura, and T. Research has provided well-documented evidence that the development of air transport services can have a substantial economic benefit for a country or region. The focus of this chapter is to highlight some of this research, particularly the benefits that the entrance of low-cost carriers LCCs have brought to air transport and related markets. Empirical Evidence for the Impact of Air Transport There is a wealth of studies assessing the economic impact of air services.
The majority of impact studies in current aviation literature are based on input-output analysis. Developed by the economist Wassily Leontief, inputoutput or interindustry analysis describes and quantitatively portrays the interdependency between different economic sectors Leontief Studies using input-output analysis are particularly useful in mapping the impact of changes in demand.
For example, increased demand for air services will consequently be matched by an increase in aviation services offered by airlines. Increased disposable household income, resulting from increased employment, will consequently be re-spent on goods and services. Input-output analyses try to quantify these impacts.
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Due to data intensity, the focus of this type of study is often on a specific airport or region and mostly in developed countries. In the United States, for example, a multitude of studies have been commissioned by airports and regions to assess the economic impact of aviation for example, the Texas Department of Transportation ; Association of Monterey Bay Area Governments Although prominently used in aviation literature, input-output analyses fail to capture the enabling or catalytic impacts of aviation and may therefore provide an incomplete picture.
Catalytic impacts refer to the economic impact air transport can have on employment and income generated by economic activities which rely on the availability of air transportation Ishutkina and Hansmann Recent studies are increasingly trying to analyze the catalytic effect of air transport. Furthermore, it can be difficult to distinguish whether interrelationships are based on correlation or causality. Finally, obtaining the required data on investments and productivity can be challenging, particularly in developing countries. These studies estimate the enabling effects of aviation on tourism, trade, local investment, and productivity improvement.
There are also a handful of academic studies that focus on the enabling effects of aviation Button and Taylor ; Bel and Fageda In addition, a number of research papers analyze the impact of changes in air transport policy or regulation of aviation services. The consultancy Intervista, for example, has published a series of studies on the impact of air transport liberalization between and Intervista Consulting —09 , as has Oxford Economics Oxford Economics The former uses a gravity model that is able to forecast traffic between any two given countries.
The model, developed in its core study Intervista Consulting —09 , uses economic, trade, and geographic factors as well as the attributes of the respective air service agreements ASAs between the two countries as key variables to forecast traffic volumes. The study then applied this model to a number of countries including Chile, Singapore, and Uruguay.
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Although providing a rigorous generic framework for quantifying passenger traffic post-liberalization, the model is unfortunately not able to take into account certain market-specific factors. This limits its validity in certain cases Ishutkina and Hansmann To complement these more generic frameworks, there have also been multiple case studies analyzing the effects of liberalization in specific countries or regions.
ComMark, for example, produced a report on the economic importance of air transport liberalization in the Southern African Development Community SADC in , including country- and region-specific factors in their analysis ComMark The overall challenge with studies of this kind originates from the interrelationship between some of the variables used in impact studies. For example, export and trade figures are intrinsically linked to GDP. When including these variables in the regression analyses, used by most impact studies, it is difficult to isolate the impact of each individual variable on air traffic growth Ishutkina and Hansmann An overview of the key impact studies is provided in table 2.
The Impact of Low-Cost Airlines Building upon the research evidence above, the remaining part of this chapter will focus on highlighting some of the more specific effects that have been observed with regard to LCC market entry. These include not only the impact on the air transport market in terms of traffic and fare levels, but also on directly related and even unrelated industries.
Research on the impact of LCCs is still not as common as expected due to the difficulty of linking the impact of increased air transport to any one particular business model. However, a number of studies have identified some common effects related to the entrance of LCCs. Figure 2. Unfortunately research on LCC market entrance is currently almost entirely focused on developed countries and regions, particularly Europe and the United States.
This is mostly related to the fact that the more recent emergence of LCCs in new markets means that the required data are often unavailable.