A NEW ERA OF LOW-COST CARRIERS IN KOREA: STRATEGIC USE OF REGIONAL AIRPORTS AND FLIGHT SCHEDULING DIFFERENTIATION
Joo Yeon Sun
Assistant Professor, Dankook University, Department of Economics, Republic of Korea, email@example.com
This paper investigates strategic use of regional airports and airline flight scheduling in Korea. For each of the five regional airports (Seoul, Busan, Jeju, Daegu, and Cheongju) airline-level data are collected for both domestic and international non-stop routes from 2006 to 2018. Before 2005, two legacy carriers were the only carriers that operated in each domestic city-pair market where a hub-and-spoke system is not the optimal air transport network strategy. Aviation industry dynamics have changed on account of Korea’s domestic airline industry deregulation, and the emergence of low-cost carriers (LCCs) has been linked to greater market competition in domestic short-haul routes with a point-to-point network structure. Aggravated congestion leads to international medium-haul routes departing from regional airports in Korea. Differentiation in the scheduling of departure flight times applications are addressed in the airline studies (Borenstein and Netz (1999). The two measures for differentiation are constructed and compared: the ratio of average differentiation among all pairs of flights to maximum differentiation among all pairs of flights (DIFF) and the ratio of average inter-firm differentiation to average differentiation among all pairs of flights (BtwnDIFF). Airport hub location with scheduling effects is addressed in empirical models. On time performance (OTP) measure represents the flight service quality at the airport level. Other factors such as flight frequency, relative fare, and load factor are also controlled. Furthermore, the expansion of LCCs needs to be investigated. In the presence of a carrier-within-a-carrier strategy, wherein legacy carriers operate their own subsidiary LCCs, independent LCCs would try to differentiate their flight services from those of legacy carriers through maximum product differentiation. It is of interest to compare the impacts of competition level on departure flight times scheduling pattern in the domestic short-haul routes and international medium-haul routes departing from the same airport. First, we test that competition leads to less differentiated departure flight times in both domestic and international routes. Second, we examine that this tendency for less differentiation is weaker on the routes with LCCs where there have been competitive pressures associated with new entrants. Third, the paper also asks whether we find a clustered departure flight times scheduling pattern in the routes where international air passenger traffic has been increasing. We empirically investigate that the smaller inter-firm differentiation is the driving force of less departure flight times differentiation with competition. The empirical findings suggest that airline carriers strategically schedule departure flight times and allocate flights between domestic short-haul routes and international medium-haul routes as competition increases.
Keywords: Low-cost carriers, Spatial competition, Product differentiation, Regional airports, Airport network
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