Title: Scale economies in the Korean airline industry since the entry of low-cost carriers

Authors: Sang-Lyul Ryu; Jayoun Won

Addresses: College of Business, Konkuk University, 120 Neungdong-ro, Gwangjin-gu, Seoul, 05029, Korea ' College of Global Business, Korea University, 2511 Sejong-ro, Sejong, 30019, Korea

Abstract: This paper investigates how the economies of scale in the Korean airline industry have changed since the emergence of low-cost carriers (LCCs). Our sample consists of 66 firm-years from 2008 to 2017. We estimate the translog cost function (TCF) to determine the changes in scale economies during the sample period. The TCF represented airlines' cost function more appropriately than the Cobb-Douglas model. The estimated cost function suggests that overall economies of scale have prevailed in the Korean airline industry since the entry of LCCs. Depending on the type of airline business, scale economies seem to be exhausted for full-service carriers, whereas LCCs have enjoyed economies of scale.

Keywords: airline industry; full-service carriers; low-cost carriers; LCCs; economies of scale.

DOI: 10.1504/IJEPEE.2019.099696

International Journal of Economic Policy in Emerging Economies, 2019 Vol.12 No.2, pp.149 - 157

Received: 02 Jul 2018
Accepted: 17 Oct 2018
Published online: 20 May 2019 *

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