Airline economics is a fascinating study of the international air travel industry. In this installment, we'll examine growth frontiers and competition among air carriers. Airline companies are consolidating and some are acquiring others. All this makes for an interesting business environment. With globalization and liberalization, we are seeing more inter-company fights over market share and airline equity.
Growth in China has brought a renewed surge in global airline business. The People's Republic is quickly becoming the largest airline market in the world with more than a third of all passengers traveling via air. As China expands its economic influence, it's expected to re-establish itself as a major global airline industry player. Some expect a coming of a new super airline which will challenge the current airline giants.
We'll take a brief look at airline economics in Hong Kong, one of the many growth frontiers for the airline industry. Hong Kong enjoys low costs and an easy logistics chain that make operating a small airline a simple proposition. The low cost of doing business means that air carriers have little trouble attracting customers. In fact, Hong Kong enjoys the highest volume of airline flights in the world outside of London.
Low labor costs and a highly efficient logistics system make it easy for any airline to compete on price with any airline in any country. This is the principle reason for the low cost of doing business in Hong Kong. However, the principle of low cost and high volume does not apply everywhere in the world. In other words, there are places where competition is stiff and where economies of scale do not apply. The airline industry, for example, is highly concentrated in North America. Unlike many other service industries, the airline industry is fairly insulated from other economic variables.
In spite of its size and growth frontiers, Hong Kong has few large airports. The remoteness of the region prevents major cities like Tokyo, Seoul, and Taipei from serving as entry points for Asian passengers. Instead, Hong Kong gets most of its air travel from China and Japan. These two countries have the lowest airline fares in the world. This facilitates cheap international travel and makes air transport in Asia very cheap.
As a result, competition among airlines in Hong Kong is intense. Airlines offer low fares to attract customers. They also offer lucrative discounts and loyalty incentives to retain customers. It is the fierce competition among airline companies that results in low airline fares and frequent flyer programs. Moreover, the large volume of traffic ensures that the airline industry enjoys significant efficiencies.
The growth of the airline industry in Hong Kong is also due to the large scale of private investment in the airline industry. China invested about $4 billion in the development of the airline industry. Consequently, the growth of the airline industry is stimulated by high volumes of investment and flows of capital into the economy. Another important element of economic economics of Hong Kong is the presence of a strong commercial banking system.
Hong Kong enjoys a large number of carriers serving a variety of customers. With direct flights from China to more than hundred destinations in the world, it is an important center of the airline industry. Given the size of the economy, low fares and competitive rates, the airline industry has become very efficient and profitable. Economic economics of Hong Kong play an important role in ensuring that the city receives optimal level of prosperity and development.
A number of factors contribute to the excellent performance of the Hong Kong economy. The consistent growth of the economy is due to the liberalization policy adopted by the Chinese government. The following are some of the major reasons for the excellent performance of growth frontiers:
Airline economics in Hong Kong are closely linked to its growth and development. The above mentioned factors are conducive for . . . . . . the smooth functioning of the economy. The vibrant and advanced local economy is highly capable of absorbing the huge influx of foreign direct investment. Air transport plays an important role in the satisfactory handling of logistics.
The growth of the airline industry has led to the employment generation in the local economy. There is an intense competition in the market between the airline companies and they are fighting hard to attract the attention of the clients. Due to the economic growth, the wages level has shot up and people are now ready to work for such a profitable amount. This has made the economic situation in Hong Kong better than before. As a conclusion, we can say that competition between the airlines is good for the growth of the economy of Hong Kong. Thus, it can be said that economics of air transport play a vital role in the satisfactory handling of logistics and overall economy of the country.