Low cost carrier competition and route entry in an emerging but regulated aviation market - The case of China

Xiaowen Fu, Zheng Lei, Kun Wang, Jia Yan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

74 Citations (Scopus)

Abstract

Although China lags behind other liberalized aviation markets in low cost carrier (LCC) development, its largest LCC, Spring Airlines, has achieved rapid growth in traffic volume and revenue, as well as consistent profitability, since its inauguration in 2005. Our empirical study on the Chinese domestic market suggests that Spring adopts a "cream skimming" strategy to enter high-priced routes, allowing the carrier to achieve both a very high load factor and considerable profitability. Spring's capacity and market share on individual routes are constrained to low levels, likely due to government regulation and/or a "puppy dog" strategy adopted by the carrier. As a result, Spring is able to achieve fast growth without triggering price wars. To incumbent full service carriers, high speed rail (HSR) services impose much more significant competitive pressure than low cost carriers. Similar to LCCs in developed markets, Spring prefers to serve markets with high traffic volumes out of its operational base in Shanghai. Overall, Spring's entry decision is not significantly affected by competition, either from full service airlines or HSR services. Our investigation suggests that LCCs have potential to introduce more competition but are yet to be a "game changer" in China. Further deregulation of the domestic market is needed.

Original languageEnglish
Pages (from-to)3-16
Number of pages14
JournalTransportation Research Part A: Policy and Practice
Volume79
DOIs
Publication statusPublished - 1 Sep 2015
Externally publishedYes

Keywords

  • Chinese aviation industry
  • Low cost carrier
  • Spring Airlines

ASJC Scopus subject areas

  • Civil and Structural Engineering
  • Transportation
  • Management Science and Operations Research

Cite this