| The hard-won development of China civil aviation industry has drawn the attention from worldwide, thanks to the dedication of generations of aviation workers. Some problems, however, comes along with the rapid development. Many domestic scholars, aiming to solve these problems, conducted many pioneering research. In comparison with works by foreign scholars, the focus and methods of research by scholars from China is of significant difference. For instance, in terms of the oligopoly feature in both China and US aviation, foreign scholar, mostly using the methods of econometrics, analyze and investigate the merge of civil aviation companies and the selection of route network structure, combining the market forces; domestic scholar, on the other hand, mostly explain the reasons from the perspective of administrative factors. The different stage of civil aviation market, undoubtedly, decides the difference of research perspective. Besides, the gradual loosening of regulation has also a great influence on the evolution of civil aviation industry. However, are there any other reasons that can explain the oligopoly market structure still existing after the reshuffle of civil aviation industry proposed by CAAC?In last more than30years, civil aviation companies around the world, hoping to stay in business among fierce competition, made a lot of adjustments to their own strategic planning. The first transformation is that large-scale companies, one after another, established Hub-and-Spoke network route structure. The second is the rapid development of aviation alliances. The third is the advancement of Frequent Flyer Programmed. These adjustments are of great relevance to aviation network economy, which is also investigated by domestic scholars in theory mostly. Mathematical analysis on how these adjustments affect the competition of civil aviation in China is rarely seen, as well as related empirical study. This thesis believes any research without taking the latest changes into consideration is groundless, which is unable to give theoretical support to the development of aviation industry and related policy-making. In view of the above, this thesis, which bases itself on earlier research, taking aviation network economy as logical starting point, analyzes the market structure, competitive behaviors and performance of China civil aviation, both theoretically and empirically, within SCP framework. In accordance with actual situation and research results, this thesis also proposes constructive advices to the further reform of civil aviation. This thesis comprises of five parts:First, carding the conception of aviation network economy. We have been used to investigate the network economy of air transportation from the perspective of aviation industry. This thesis believes, after synthesizing the definitions of various researchers, the network economy of air transportation means, for certain aviation company, increasing the number of aviation network nodes and opening up new routes will expand market demands and raise passenger volume, which is favorable to adjust the load ratio of different routs and increase the usage rate and efficiency of the entire network. When the network stretches dimensionally beyond the effective management range, the interconnection between the networks of different companies will form even larger transportation network, which, besides providing convenience for passengers, reduces the overall cost of the industry due to the rapid expansion of the market. Although under certain circumstances, Point-to-Point route structure may be even lower in cost, Hub-and-Spoke is considered the most viable way of realizing network economy, and is also the center of network economy relate research. The consumption externality of customers, the other import participant of the market, is also an economic feature related toe network economy, which originates from the complementarity between geographic nodes, and is presented as all the crew services during the connecting of networks. This thesis believes, these two different economic features, which both stem from the economy of network, form the network economy in aviation industry, and influence its development collectively.Second, analyzing the measure of civil aviation market and its reasons. Herfindahl-Hirschman Index and Concentration Ration are the frequently-used indices for calculating market structure. This thesis uses these indices to complete the calculation of the structural features of civil aviation market of China from2002to 2012. Rather than the calculation of structure, this thesis emphasizes on the reason of the structure of civil aviation market in China, and gives new explanations for the formation of civil aviation market from the control of dominate aviation companies over hub airports and the network externality of customers. It is a convenient way for aviation companies to control hub airports using Hub-and-Spoke structure with their own influence, which, at the same time, endows aviation companies with capability to set charging difference. When this difference neutralizes the cost advantage of aviation companies of smaller scale in regional market, dominant aviation companies are able to wage price wars to seize the market between hub airports and non-hub airports. Through model analysis, this thesis has discovered that the foundation of customers becomes more solid, and the attraction of to new customers becomes stronger with the expansion of nodes. Under certain conditions, the freedom of choice of customers based on network externality will become an invisible barrier insurmountable for many aviation companies, which is not, unlike capital barrier, breakable using financing tools in certain period of time. Time cost alone is a great consumption of many aviation companies.Third, discussion on forming alliance and Frequent Flyer Programme. The business range of an aviation company is limited. As a result, assistance from alliance partners is often needed to acquire extra market. However, this may raise concerns of public on whether alliances will affect competition. Competitive behaviors discussed in this thesis are mainly about pricing, for two reasons. The first is that people are used to understanding the degree of competition of an industry through analyzing the pricing behavior of companies, and the second is that it is easier to be contained in SCP, which can be verified with influence of structure on behavior. This thesis hereby discusses international market and domestic market respectively. For international routes, considering the strength of aviation companies and differences of density economy after alliances are formed, this thesis reset the form of cost function, and then acquire the corporate profit function and the first order conditioning for profit maximization. The result indicates that, for international market, forming alliances has no great influence on the ticket price between hub airports. The following empirical analysis further verifies this result, the alliance variable has a positive influence on price, with a magnitude of0.16228, while the corresponding P value is0.4859, which is insignificant in coefficient test. For domestic market, the problem is more complicated because we must determine beforehand whether alliance exists in domestic civil aviation market. Using previous research results for reference, this thesis assumes alliances exist in domestic aviation market, and are bonded by equity relationships. As discussed in this thesis, even if whether this kind of equity relationships can be called alliances is controversial, the fact that a route is mutually run by many aviation companies is undeniable. If we study the influence of equity relationship on ticket price using the method of setting dummy variables, the result will be consistent with the study on how alliance influence the price. Besides, considering that economies of scope provides natural conditions for multiple-market contact competition, this thesis also introduced this factor into the modeling. After data analysis, this thesis selected240domestic routes, most of which are hot routes, connecting more that60cities, guaranteeing the representativeness of the data. The empirical results indicates that equity-alliance has no significant influence on the price of domestic routes, and multiple-market contact competition shows obvious change with seasons.Frequent Flyer programme is a major effort for aviation companies to exercise their locking strategies, which is related to conversion cost. This thesis is based on the programme and analyzes the problem step by step. First, this thesis completed the construction of basic model which includes conversion cost arising from Frequent Flyer programme. Through modeling, we discovered that Frequent Flyer programme, under certain circumstances, may lower the profit of aviation companies, which is contradictory to the common notion that conversion cost benefits the profit solely. Second, this thesis constructed a game model based on the externality of consumers. We discovered that conversion cost related to Frequent Flyer programme is able to hinder competitors from entering the market, indeed. However, taking part in the Frequent Flyer programmes of competitors, and in return, getting more market demand, is the realistic option for all the companies. Fourth, measurement of production efficiency in aviation industry of China. This thesis discovered after estimation finished in Frontier4.1that, using five listed aviation companies’income and total transportation volume as output indicators, and permanent assets and number of employees as input indicators, from2006to2012, presenting technical inefficiency with a linear function which has included variables such as total asset turnover, the proportion of highly qualified staff, asset-liability ratio, the efficiency difference between samples and companies is insignificant. The different on the total transportation volume, however, shows signs of expanding. At the present stage, the output growth of aviation companies relies heavily on capital and less on labor force. Besides, the operational capability of capital has a great influence on the technical efficiency of aviation companies, while technical capability and structure of capital shows otherwise. The improvement of technical inefficiency in sample time is limited and decreasing.Five, policy recommendations. Compared to developed countries, China’s civil aviation industry started late, and many problems are still to solve. Improvement can be made on government level. This chapter is divided into two parts. First, we will search for the problems and deficiencies in legislation and government sector construction through so-called Soft Policy Restraints observed in the industry, and make recommendations. Soft Policy Restraints is not unique in aviation industry. It exists in almost every network economy. Therefore, deficiencies discovered and recommendation made in this thesis can also be used as reference in other industry even the focus is still on aviation industry. Second, combining with the results of previous chapters, six recommendations are made.1. Setting a firewall which can prevent dominant aviation companies from excluding competition using hub airports.2. Enhancing the policy which support private-owned aviation companies.3. Encouraging aviation companies with enough strength to take part in global alliances.4. Evaluating the so-called Zebre phenomenon existing in state-owned aviation companies in a comprehensive manner.5. Paying great attention to conspiracy between companies arising from Frequent Flyer programme.6. Keeping financing civil aviation companies. |
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