Production Efficiency Analysis of Korean FSCs and LCCs
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초록
Since the mid-2000s, low-cost carriers have entered the market in Korea, resulting in intensified competition. In this new scenario, it is necessary for airlines to secure competitive advantage and to develop strategies for higher productivity. The purpose of this study is to analyze the efficiency standing of Korean air carriers and to determine the factors of airline production efficiency. In order to analyze the efficiency of airlines, the stochastic frontier analysis is used in this study. I find that, on average, full-service carriers produce higher potential output than do low-cost carriers, and that the efficiency level of LCCs gradually increases over time while that of FSCs has become stagnant. This can be interpreted as FSCs already achieve economies of scale, and thus achieve efficiency through cost reduction, e.g. fuel expenses. As a result of the empirical analysis of the factors affecting the airline productivity, it was confirmed that the number of airplanes has a positive effect on the productivity of both full-service carriers and low-cost carriers. Fuel expense has a negative effect on full-service carriers’ productivity, which indicates that as fuel expenses decrease, the productivity of full-service carriers increases. I also find that the number of employees and the load factor have a positive effect on productivity of low-cost carriers.
Abstract
Since the mid-2000s, low-cost carriers have entered the market in Korea, resulting in intensified competition. In this new scenario, it is necessary for airlines to secure competitive advantage and to develop strategies for higher productivity. The purpose of this study is to analyze the efficiency standing of Korean air carriers and to determine the factors of airline production efficiency. In order to analyze the efficiency of airlines, the stochastic frontier analysis is used in this study. I find that, on average, full-service carriers produce higher potential output than do low-cost carriers, and that the efficiency level of LCCs gradually increases over time while that of FSCs has become stagnant. This can be interpreted as FSCs already achieve economies of scale, and thus achieve efficiency through cost reduction, e.g. fuel expenses. As a result of the empirical analysis of the factors affecting the airline productivity, it was confirmed that the number of airplanes has a positive effect on the productivity of both full-service carriers and low-cost carriers. Fuel expense has a negative effect on full-service carriers’ productivity, which indicates that as fuel expenses decrease, the productivity of full-service carriers increases. I also find that the number of employees and the load factor have a positive effect on productivity of low-cost carriers.
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