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Trans. Planning Journal
| Title | Impacts of Over-capacity on the Pricing Behaviors of Taiwan’s Air Market |
|---|---|
| Author | Wei-Ming Wu |
| Summary | What are the real factors, other than the price war, that causes huge deficits for the domestic airlines? In this study, a model was created to demonstrate that airlines might set a more aggressive pricing strategy when the over-capacity condition is serious, under a less over-capacity condition while airlines might resort to a more peaceful price strategy. If the deficit is resulted from serious over-capacity problems, then to approve the increase of the regulated airfares will be an unfair play because it sacrifices consumers’ benefit to subside the carrier’s losses caused by wrongly expanding its fleet. Therefore, setting a policy to control the over-supply situation by reducing the approved flight numbers will be a reasonable mean theoretically and practically. In contrast, if the deficit is caused by destructive price competition, then setting a stable price regulation policy will be a reasonable way to maintain the market mechanism. This study has shown that the expectation of relinquishing the banned cross-strait air transportation is the main factor that made the carriers optimistically expand their fleet. Consequently, the unrealized expectation had led to a badly superfluous flight condition and inefficent fleet operation. Eventually, the over-capacity situation triggered the carriers to engage in a severe price war trying to improve the revenue. |
| Vol. | 31 |
| No. | 2 |
| Page | 429 |
| Year | 2002 |
| Month | 6 |
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