Cross-border route expansion strategies and the degree of low cost
carriers’ intra-regional liability of foreignness
Master Thesis
MSc. Business Studies – International Management
Supervisor: Dr Johan Lindeque
Second reader: Dr Vittoria Scalera
Student: Puck Voorneveld
Student ID: 11129786
Abstract
This study applies a qualitative multiple case-study research design to explain the cross-border route expansions of low-cost carriers (LCCs) based in the ASEAN sub-region. The study analyses two cases: the cross-border route expansions of AirAsia, Lion Air and their respective subsidiaries. In existing research, the effect of institutions on a phenomenon is often measured at national level. Hence, this thesis seeks support for the influence of subnational institutions on cross-border expansions. Findings in the study support the moderate regional integration of the ASEAN sub-region. This limited regional integration results in higher transaction costs and consequently higher intra-regional liability of foreignness (LoF) in the event of cross-border expansions. The effect of formal institutions on national and subnational level influence route expansions by LCCs and support the need for strategic-asset seeking expansion motives. Besides the institutional perspective, the importance of the resource based view was confirmed. Firm-specific advantages (FSAs) are supported to be of significant importance in cross-border expansions by LCCs.
Keywords: cross-border route expansion, regionalization, intra-regional liability of foreignness,
Statement of Originality
This document is written by student Puck Voorneveld who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating
it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgements
In the first place, I would like to show my sincere gratitude to my thesis supervisor Dr. Johan Lindeque for his endless patience and guidance. His enthusiastic coaching was extremely valuable and after every conversation I felt re-energized and inspired to continue writing. Especially in the last weeks of writing my thesis, his elaborated suggestions, motivational words and experience pushed the development of my thesis to reach this result.
Secondly, I would like to thank my fellow students and friends who shared all their time with me in the library, discussing each other’s theses and different thoughts on the thesis subjects.
Last but certainly not least, I want to thank my family and relatives; they have been very supportive to me in the entire thesis process which was long and not always without challenges.
Table of contents
1. Introduction ... 8
2. Literature review ... 12
2.1. Globalization and regionalization ... 12
2.2. Liability of Foreignness ... 14
2.3. Institutional theory ... 15
2.4. Regional institutional integration ... 16
2.5. Rescaling geographic space ... 18
2.6. Firm Specific Advantage ... 19
2.7. Dunning’s investment motives ... 20
2.8. The Industry Specificity of Regionalization: The Airline industry ... 21
2.9. Problem statement ... 23
3. Methodology ... 27
3.1. Research Philosophy ... 27
3.2. Qualitative Case Study Research Approach ... 28
3.3. Case Selection for Study ... 29
3.4. Quality criteria ... 31 3.5. Data collection ... 32 3.6. Data Analysis ... 33 4. Results ... 37 4.1. Within-case analysis ... 37 4.2. Cross-case analysis ... 68 5. Discussion ... 74 6. Conclusion ... 78 7. References ... 81 8. Appendices ... 89
Appendix 1: International Route Expansions per subsidiary ... 89
Appendix 2: Airport Categorization: List of all destinations of Lion Air & AirAsia ... 118
Appendix 3: Overview of sources used for analyzing route expansions ... 123
Index of Tables and Figures
Table 1: Case Specification………... 30
Table 2: Data Sources……….………... 33
Table 3: Airport Categorization………..……... 35
Table 4: Coding Scheme……….………... 36
Table 5: AirAsia Group Summary Table………... 38
Table 6: Malaysia Air Asia Route Expansions………...………... 40
Table 7: Malaysia Air Asia Cross-border Expansions………….…………..………... 41
Table 8: AirAsia X Route Expansions……….…………..………... 43
Table 9: AirAsia X Cross-border Expansions………...…….…………... 44
Table 10: Indonesia AirAsia Route Expansions……….…………... 45
Table 11: Indonesia AirAsia Cross-border Expansions………….……….………... 46
Table 12: Indonesia AirAsia X Route Expansions……….………... 47
Table 13: Indonesia AirAsia X Cross-border Expansions………….…….………... 48
Table 14: Philippines AirAsia Route Expansions………..……... 49
Table 15: Philippines AirAsia Cross-border Expansions………….………….………….……... 50
Table 16: Thai AirAsia Route Expansions……….………... 52
Table 17: Thai AirAsia Cross-border Expansions………..…... 53
Table 18: Thai AirAsia X Route Expansions……….………... 54
Table 19: Thai AirAsia X Cross-border Expansions………….……….………... 55
Table 20: Lion Air Group Summary Table ………...………... 57
Table 21: Lion Air Route Expansions………... 58
Table 22: Lion Air Cross-border Expansions……….………... 59
Table 23: Thai Lion Air Route Expansions………... 60
Table 24: Thai Lion Air Cross-border Expansions ………….………...………... 61
Table 25: Wings Air Route Expansions………...………... 62
Table 26: Malindo Air Route Expansions………...……...………... 63
Table 27: Malindo Air Cross-border Expansions………….………...……...………... 64
Table 28: Batik Air Route Expansions………...………... 66
Table 29: Batik Air Cross-border Expansions………….………..………... 67
Table 30: Cross-Case Summary Table on Regional Orientation and Cross-border Expansion Motives……….. 69
Table 31: Cross-Case Summary Table on Expansion Motives and Formal Institutions………... 72
Table 32: Results of Working Propositions………... 74
Index of Acronyms
AAX AirAsia X
AFTA Asean Free Trade Area
APEC Asia-Pacific macro-region
ASAM ASEAN Single Aviation Market
ASEAN Association of Southeast Asian Nations
CAQDAS Data Analysis Software
CAPA Centre of Aviation
CASA Civil Aviation Safety Authority
CM Common Markets
CU Customs Union
ECU Economic Union
ERIA Economic Research Institute for ASEAN and East Asia
EG Economic Geography
EU European Union
FDI Foreign Direct Investment
FSA(s) Firm Specific Advantage(s)
FSC(s) Full Service Carrier(s)
FTA Free Trade Area
IAA(X) Indonesia AirAsia (X)
IB International Business
ICAO International Civil Aviation Organization
IPO Initial Public Offering
JV Joint Venture
LCC(s) Low-cost carrier(s)
LoF Liability of Foreignness
MAA Malaysia AirAsia
MLE Multi Location Enterprise
MNE(s) Multi National Enterprise(s)
NAFTA North American Free Trade Area
PAA Philippines AirAsia
RBV Resource Based View
RTAs Regional
TAA(X) Thai AirAsia (X)
TI Total Political Integration
TLA Thai Lion Air
US United States
1. Introduction
This thesis integrates international business (IB) concepts at different levels of analysis in geographic space, specifically formal and informal institutions at airport- and national levels of analysis for route expansions by low-cost carriers (LCCs). It combines IB topics as regionalization, liability of foreignness (LoF) and institutions with the concept of rescaling, using an economic geography (EG) lens. Rescaling helps to explain the behaviour of multinational enterprises (MNEs) and drivers of expansion strategies at subnational level other than location strategy forces at the national level (Beugelsdijk & Mudambi, 2013; Coenen, Benneworth, & Truffer, 2012).
The phenomenon of LLCs took over the airline industry starting in the United States (US). First-mover Pacific-South-West Airlines offered cheap intrastate flights from 1949 onwards (Francis, Humphreys, Ison, & Aicken, 2006). Pacific-South-West Airlines asked lower prices in comparison to traditional full service carriers (FSCs), resulting in rapid increases in market share (Button, 2012). The low-cost movement was followed in the European Union (EU) by Ryanair and EasyJet (Frédéric Dobruszkes, 2006), who serve destinations across the EU region. The low-cost movement is supported by deregulation and liberalization in the airline industry (Goetz & Sutton, 1997). The LCC markets in the US and EU developed in a fast pace and are recently maturing however, other regions show different development profiles.
Since 2000, the low-cost airline market grew rapidly in the ASEAN sub-region. Several LCCs started operations. AirAsia expanded into one of the largest carriers in the region, providing opportunities for the less fortunate to fly (Damuri & Anas, 2005). Momentarily, 60% of all airline seats sold in the Association of Southeast Asian Nations (ASEAN) are on LCCs (CAPA, 2015b). The academic literature on LCCs argues that informal and formal institutional barriers, as governmental control and rules and regulations, would not allow LCCs in the Asia-Pacific
macro-region to flourish (Kua & Baum, 2004; Damuri & Anas, 2005). Nevertheless, the success of LCCs in the EU and the US and their strategies inspired ASEAN’s LCCs to go after the rising incomes of the middle-class and the demand for interconnectedness in the Asia-Pacific macro-region.
This growth in the low cost airline industry is strongly associated with institutional developments (Button, 2012; Goetz & Sutton, 1997; Moore, 1986; Richards, 2001). Deregulation, for instance the relaxing of government authority to control the entry and exit of flights, has changed the airline industry over the last decades (Goetz & Sutton, 1997; Zhang, Hanaoka, Inamura, & Ishikura, 2008). Alongside the liberalization of global economies and national rules and regulations, these forces enabled airlines to expand worldwide (Graham & Shaw, 2008; Hanaoka, Takebayashi, Ishikura, & Saraswati, 2014; Zhang et al., 2008). The effect of multi-level governance forces (Coenen et al., 2012) highlights the importance of studying institutional forces on route expansion strategies. In particular in an aggressively developing stage as the LCCs from the ASEAN sub-region find themselves momentarily (Damuri & Anas, 2005; Hanaoka et al., 2014; Marks, Hooghe, & Blank, 1996). Institutions are important and influence location decisions (North, 1991). Certain forces could draw LCCs to destinations on subnational level, because the institutional rules and regulations on city-level compensate for the lack of them on national or regional level and can mitigate the effect of LoF (Goerzen, Asmussen, & Nielsen, 2014). Institutions correspondingly influence MNE expansion patterns on regional level. The EU is well developed in terms of institutions and is economically integrated (Jetschke & Murray, 2012; Lorenz, 1993). The Asia-Pacific macro-region however, is perceived to be less integrated driven by differences in cultural, economic and administrative forces (Jetschke & Murray, 2012; Langhammer, 1995; Lorenz, 1993; Sharma & Chua, 2000). This leads to differences in intra-regional LoF (Eden & Miller, 2001; Zaheer, 1995) for LCCs, either more extreme in the Asia-Pacific macro-region, or less in the EU. A lower degree of intra-regional LoF can support an
increase in cross-border destinations (Albers, Heuermann, & Koch, 2010). The study presents how these effects of intra-regional LoF shape ASEAN LCCs route expansions.
An application of this topic to the airline industry is specifically relevant for the following reasons: Industry specificity is a current topic in the academic literature with regards to regionalization (Rugman & Verbeke, 2004). Different industries seem to experience different degrees of spatial integration (Rugman & Collinson, 2004; Rugman & Verbeke, 2004; Kolk, Lindeque, & Buuse, 2014; Paliwoda, Slater, Kolk, & Margineantu, 2009; Grosse, 2005). To date combining the regional (Rugman & Verbeke, 2004) and subnational (Beugelsdijk & Mudambi, 2013) lens of geographic space in the context of the airline industry remains an understudied focus.
The academic literature writes about regional development and strategies for LCCs in the US (Boguslaski, Ito, & Lee, 2004; Goetz & Sutton, 1997; Moore, 1986; Vowles, 2001) and the EU (F. Dobruszkes, 2009; Frédéric Dobruszkes, 2006; Dobson, 2007; Francis, Fidato, & Humphreys, 2003). However, less is studied with regards to the Asia-Pacific macro-region. Existing studies compare internationalization strategies of the EU and the Asia-Pacific macro-region based on the OLI model by Dunning (2001) (Albers et al., 2010). Other studies draw attention to the effect of the regulatory environment in the Asia-Pacific macro-region on performance of LCCs (Zhang et al., 2008) or the potential success of LCCs (Gillen & Taweelertkunthon, 2007), as the phenomenon is still in its early stage development in this region. Other academics focused on specific aviation elements as passenger perceptions (O’Connell & Williams, 2005) or countries (Murakami, 2011). Following from these studies, to recent knowledge, no research has covered the impact of formal and informal institutions on LCCs, specifically researching the ASEAN sub-region.
Besides contributing to existing literature, the study can add value to practitioners in the airline industry. LCCs can identify strategies of competitors in a similar or conflicting regional profile and see what approach is most competitive. Moreover, local policy-makers at airports can
benefit from attaining additional knowledge on the effect of regional profiles and formal institutions. This knowledge can be used to create incentives for new LCCs to serve an airport.
The research follows a multiple-case study research approach. The two cases are the route expansions of AirAsia and Lion Air. These LCCs are the largest in revenue and passenger numbers in the ASEAN sub-region. The research focuses on the regional integration project of the ASEAN. The study presumes that lower regional integration in the ASEAN sub-region provides interesting insights compared to the integrated EU region. The airline industry is relevant to the concept of institutionalism, as the highly-regulated nature provides a dynamic case. The qualitative data used for the study are articles from ASEAN business newspapers, annual reports and aviation industry documents. The findings from the analysis of these sources of data are presented in analytical summary tables. These tables find support by the thorough evidence to be found in the appendices. This study aims to answer the following research question:
How do national and subnational institutions affect the internationalization strategies of low cost airlines in the ASEAN sub-region?
This study proceeds by presenting a review of the key dimensions in this study. First it introduces the regionalization theory. Afterwards, institutional theory and the concept of rescaling in geographic locations and the relevance of the airline industry are discussed. In the conceptual framework, four working propositions are developed. This is followed by an explanation of the research methodology. Then a description of the research philosophy, the research design, the case selection process and data collection process are shown. The results are presented in a within-case and cross-case analysis of the findings. The conclusion and discussion sections present the most important findings and highlight the scientific relevance and managerial implications of this study. Lastly, the limitations of the study and suggestions for future research are presented.
2. Literature review
The following section introduces the existing literature related to the regionalization/globalization debate, institutional theory and rescaling in geographic space to highlight the regional nature of LCCs. Furthermore, it gives an overview of the industry specificity of the airline industry. Together, this literature provides a strong foundation for the focus of this study. Leading from this literature review, four working propositions are formed.
2.1. Globalization and regionalization
Globalization, which refers to “the international integration of markets in goods, services, and capital” (Garrett, 2000, p. 400), is a current topic in international business. Scholars name the following causes for globalization: Rapid technological developments, increasing economic activities across borders and the liberalization of economies and rules and regulations (Garrett, 2000). MNEs are important drivers of globalization (Garrett, 2000). They pursue economic activities across borders to expand their value-chain operations.
Some scholars see global strategies by MNEs as a myth (Asmussen, 2009; Ghemawat, 2003; Rugman, 2001; Rugman & Verbeke, 2004) and conceptualize the lack in truly global MNEs as the phenomenon of semi-globalization or “a condition of incomplete cross-border integration” (Ghemawat, 2003, p. 139). Rugman and Verbeke (2004) judge that most MNEs operate within their home-region or the extended triad-region, namely in the EU, North American Free Trade Area (NAFTA) and Asia-Pacific macro-region. This region was originally introduced by Ohmae (1985) to represent the triad of the US, EU and Japan. Certain factors cause the world to refrain from total globalization and economic integration. According to Rugman & Verbeke (2004), this is due to differences in local demands, the lack of accessibility worldwide, the need for different local
competitive strategies and limits in creating economies of scale. Rugman & Verbeke (2004) argue for a four part typology of regional MNE strategic orientation, namely global, bi-regional, home-region or host-home-region oriented. Global MNEs distribute their activities equal over the triad home-regions, Bi-regional MNEs have most of their business in two regions and host-region MNEs have most of their activities in another region than their home-region. Most MNEs are home-region oriented. 84% of the studied Fortune 500 firms have most of their business in their home-region and of these firms, 70% of airlines are mostly home-region oriented (Rugman & Verbeke, 2004). Scholars discussed the accuracy of Rugman & Verbeke (2004), in saying that the study neclects the home-country sales and had sample limitations (Dunning, Fujita, & Yakova, 2007; Osegowitsch & Sammartino, 2008). The concept of a ‘home-country effect’ (Osegowitsch & Sammartino, 2008; Rugman & Verbeke, 2008b), or the majority of revenues coming from the domestic market other than the other nations within the region, indicated the need for extended research. This research has confirmed that indeed there is a large propensity of home-country sales compared to sales from home-regions or the rest of the world (Rugman & Verbeke, 2008b). These findings help in getting evidence on how important the actual home-market in the airline industry is. Besides the high importance of national governments, regional rules and regulations form or eliminate barriers to cross-border expansions in the airline industry. “Regionalization focuses on intra-regional interdependence (macro regional clusters) of trade and other economic activities such as direct investments etc. as the natural outcome of the regional development processes” (Lorenz, 1993, p. 256). Economic, cultural and institutional differences diffuse regions, hindering these to integrate (Jetschke & Murray, 2012). Hence, this lead to different integration paces across regions. These differences are smaller intra- compared to inter-regionally and thus increase transaction costs and LoF for cross-border MNEs in a new host country in comparison to local MNEs that are from this host country (Rugman & Verbeke, 2005).
2.2. Liability of Foreignness
These sources of complexity for cross-border operations that force MNEs to predominantly pursue home-region oriented strategies come from the concept of liability of foreignness (LoF) (Zaheer, 1995). Scholars explain that domestic firms are advantaged over foreign firms because of local market knowledge, political familiarity and other factor that imply costs on new entrants (Eden & Miller, 2001; Hymer, 1976; Sethi & Judge, 2009; Zaheer, 1995). The concept of LoF combines spatial distance costs (geographical distance) with firm-specific costs (unfamiliarity of the environment), host country environment (cultural differences) and home country environment (home governmental restrictions) costs. LoF consists of either discriminatory or incidental costs. The discriminatory costs entail the rules and regulations by the host-country specifically targeting the MNE subsidiary and incidental costs are the costs of learning and adapting to clear unfamiliarity in the host-country environment (Sethi & Judge, 2009). These costs together form the transactions costs of doing business abroad, which can be minimized by doing business in locations with similar institutions (Zaheer, 1995). However, these costs should also be compared to the benefits of internationalization (Sethi & Judge, 2009). Transferable firm-specific advantages can create benefits in doing business abroad (Sethi & Judge, 2009), for example by utilizing the firm’s existing network to create economies of scale and scope or by using a strong brand image or technology. At last, the influence of transaction costs on cross-border expansion is a breakdown between the costs and benefits faced when internationalizing (Sethi & Judge, 2009). Regionalization theory argues that “additional costs of doing business abroad are often much higher when venturing into other regions of the world than when expanding intra-regionally, in the home triad region” (Rugman & Verbeke, 2007, p. 201). The institutional sources of LoF are adopted as the focus of this study considering the empirical setting of the ASEAN sub-regional economic integration project.
2.3. Institutional theory
These differences in the degree of inter and intra-regional LoF for airlines can be explained by institutional theory (Héritier & Karagiannis, 2011; Wittmer & Bieger, 2011). Formal and informal institutional differences create distance between nations, regions and subnational spaces and thus create LoF. Institutions are judged to be a guiding force in driving internationalization decisions (Dunning & Lundan, 2008; Rodrik, Subramanian, & Trebbi, 2002). Kostova and Zaheer (1999) define institutional distance as “the difference or similarity between the regulatory, cognitive and normative institutional environments of the home and the host countries of an MNE” (p. 68). DiMaggio & Powell (1983) and Scott (1995) use a sociological approach, whereas North (1991) looks at institutions through an economic lens. The economic approach provides clear evidence for selectivity in internationalization, it is for this reason that this approach is used in this study (Rugman & Verbeke, 2005). North (1991) defines institutions as drivers of economic growth in place to facilitate business transactions and secure efficiency. This concept can be translated to the transaction cost theory (North, 1987). He explains institutions as: “Humanly devised constraints that structure political, economic and social interaction” (North, 1991, p. 97). “Institutions enforce informal constraints (customs, traditions and codes of conduct), and formal rules (constitutions, laws, property rights)” (North, 1991, p. 98). These informal constraints or customs, traditions and shared values are strongly reflected by the culture of a country and support the formation of formal institutions (North, 1991; Peng, Wang, & Jiang, 2008). Informal institutions are shaped by cultural traits from respective countries (Williamson, 2009). Institutional differences between these countries can create interpersonal and inter-organizational behavioural barriers (Kang & Jiang, 2012). Hofstede presents a five point measurement for these cultural traits that provide the ability to compare national cultures from different nations with each other (Hofstede, 1983).
A strong institutional arrangement supports effective market mechanisms, whereas weak institutional markets lead to higher transaction costs associated with market transactions and thus fail to ensure effective markets (North, 1991). In developed economies, strong institutional arrangements may be almost invisible. However, in malfunctioning markets, discouraging institutions can form great barriers for cross-border MNEs. The malfunctioning of institutions in emerging economies can be described as the concept of institutional voids (Khanna & Palepu, 1997; Khanna, Palepu, & Sinha, 2005; Mair & Marti, 2009; Puffer, McCarthy, & Boisot, 2010). Institutional voids theory explains that the absence of regulating formal institutions and presence of limiting informal institutions cause a barrier for MNEs to internationalize to emerging economies (Stal & Cuervo-Cazurra, 2011). As Kang & Jiang (2012) mention, regulative or formal institutions shape location choice decisions. MNEs search for locations where institutions are similar to their home country so that they can quickly adapt to the host countries regulations. Institutional voids increase difficulties in internationalization. For example, emerging economies provide advantages to local organizations. These countries leave space for MNEs or other parties to fill these institutional voids and co-create efficient market mechanism (Mair & Marti, 2009, p. 421). With failing institutions on country level, institutions on city-level might offer compensation for weak institutions on national level (Goerzen et al., 2014). Besides the national- and city-level, formal and informal institutions on regional level influence the effectiveness of market mechanisms. The degree of influence depends on the extent of economic and political integration on regional level.
2.4. Regional institutional integration
As mentioned in the last paragraph, regional institutions can create supporting market mechanisms to create a strong regional market. Nevertheless, this is only applicable if a region is sufficiently integrated. Regional integration is introduced by Nye (1968) as the extent to which a region is
economically, socially and politically integrated, measured by comparing trade figures and amounts of intraregional air passengers. Integration can be classified ranging from free trade areas (FTA), custom unions (CU), common markets (CM), economic union (ECU) to total political integration (TI) (Balassa, 1961). The integration of regions is supported by the formation of multilateral regional trade agreements (RTAs) over the last years. Nowadays, almost all member of the World Trade Organization (WTO) are part of one of these RTAs (Choi & Caporaso, 2002). These RTAs enable MNEs to do more efficient business within regions than between regions. Trade and investment arrangements decrease transaction costs and intra-regional LoF accordingly. This creates a large benefit for doing business within a region (Rugman & Verbeke, 2005). The EU is confronted with a low degree of intra-regional LoF, “the EU is the broadest and deepest regional integration project between independent nation states in modern time, including economic, political and social dimensions” (Kolk et al., 2014, p. 78). In comparison, in the Asia-Pacific macro-region there are several factors supporting lower regional integration. These include the large cultural, political and socio-economic differences and national protectionism that drives heterogeneity between nations (Langhammer, 1995). The Asia-Pacific macro-region sustained transformations through trade agreements such as the ASEAN in 1977, the Bangkok Agreement in 1976 and further development of free trade agreements as AFTA (between six ASEAN member states) and APEC integration including Australia and New Zealand. The ASEAN trade factors did not increase intra-ASEAN trade, only in a wider APEC group and outside the region (Sharma & Chua, 2000). A study by the Economic Research Institute for ASEAN and East Asia (ERIA) (2012) states that the ASEAN sub-region was not yet successful by achieving deeper economic integration. Furthermore, the ASEAN sub-region has a long way to go to reach the EU level of integration. To be able to be successful in trading, nations within the ASEAN sub-region have numerous bilateral agreements. These bilateral agreements can undermine the influence of multilateral agreements, because the
bilateral agreements can provide large incentives that multilateral agreements might not provide on the short term. Consequently, nations miss the urge for regional integration (Levy, 1997). This lack of integration in the Asia-Pacific macro-region leads to different institutional arrangements for each nation. Which leads to a higher degree of intra-regional LoF and results in a lower tendency of firms to locate across borders within the region (Eden & Miller, 2001).
2.5. Rescaling geographic space
Besides the importance of the regional level in geographic space, institutions are measured on national level in most IB literature. Often scholars underestimate the institutional influence on MNEs from multi-level governance sources (Coenen et al., 2012). The concept of rescaling helps to identify forces to a certain phenomenon in different territorial levels. These geographical scales “can be regarded as a territorial levels at which significant relationships exist between actors: these relationships acquire a dynamic of their own through repeated interaction and that dynamic is distinctive from interactions at different scales” (Coenen et al., 2012, p. 972). Little is researched beyond the emerging work on cities (Goerzen et al., 2014) and more extensive work on clusters (Porter, 1998). Papers that combine IB and EG literature shift the focus from national or global to the subnational or regional scale (Chan, Makino, & Isobe, 2010; Beugelsdijk & Mudambi, 2013). Beugelsdijk & Mudambi (2013) introduce the concept of the ‘border-crossing multi location enterprise (MLE)’. The border-crossing MLE emphasises the combination of place, space and organization, reffering to sources of complexity from within and between country heterogeneity. Spatial economics researchers describe the study of within country heterogeneity as subnational or city-level analysis. Friedmann (1986) and Sassen (1991) introduced the city-level analysis in economic geography to study the movement of people between global city networks. Current research shows that cities and their facilities can create a strong propensity for MNEs to locate in a
specific location (Beaverstock, Smith, & Taylor, 2000; Iammarino & McCann, 2013; McCann & Acs, 2011). The extent to which global cities are relevant to MNE location strategy is assessed by their endowments and characteristics. City-level analysis supports a global restructuring process in which world cities form the strongest economic network and form new types of global governance (Beaverstock et al., 2000). Multi-level governance policies that influence MNE internationalization come from different levels in geographic space. Supranational regions correspondingly shape institutions. For example, in the ASEAN sub-region the regional government sets trade rules and regulations. On city-level, there are local actors and policy makers, influencing propensity for MNEs to locate in such location. They form formal and informal institutional arrangements, that directly attract or draw away organizations (McCann & Acs, 2011).
In the airline industry, airports are located where they can serve cities and connect the dense population of this city towards other locations (Schaafsma, 2010). Consequently, by using an industry specific approach, we connect the city-level with the airport-level of analysis for this study. In the airline industry, multi-level governance puts complex institutional forces in place for airlines. Regions introduce ‘open-sky’ multilateral agreements, whereas nations negotiate bilateral agreements. On airport-level, local policy makers set incentives to promote airlines flying to specific destinations or, on the contrary, they introduce entry barriers. These formal and informal institutions will be the focus of this study because, as primarily described, the airline industry is highly regulated and dependent on specifically formal institutions.
2.6. Firm Specific Advantage
Besides the view presented so far, that the institutional environment shapes the airline industry on multiple levels, there are certain factors that can decrease the influence of LoF on internationalization. The role of the resource-based view (RBV) (Barney, 1991) and its relation with
firm specific advantages (FSAs) should be highlighted in case they emerge as important from this research. The RBV judges that with FSAs such as machinery, offices, management capabilities, knowledge and organizational capacity, sustained competitive advantage can be created. This can can enhance the entrance of a cross-border location, by using these benefits in the new host-environment (Barney, 1991). Especially in a service host-environment, where products are perishable and FSAs are intangible, they can be utilized when expanding abroad (Rugman & Verbeke, 2008a). Some MNEs have FSAs that possess high asset specificity, such as machines and buildings. These location-bound tangible assets are more difficult to transfer and consequently do not provide benefits in international expansion. MNEs need to support the development of transferable FSAs to have a buffer to offset transaction costs when operating abroad (Hymer, 1976; Zaheer, 1995).
2.7. Dunning’s investment motives
Different foreign direct investment (FDI) motives provide reasoning for the lengthy and intensive process for MNEs to overcome institutional barriers when internationalizing. Dunning (1998) depicts four motives for location decisions in MNE internationalization: Resource-, strategic-asset-, market- or efficiency seeking. A resource seeking FDI motive is characterized by the search for raw materials and other resources that do not appear in the home-country. An efficiency seeking FDI motive is propelled by the search for lower-cost locations for operations, specifically the search for low-cost labour and achieving economies of scale and scope (Buckley et al., 2007). When an MNE follows a market seeking FDI motive, they aim for additional business in overseas markets. This motive might force them to move operations to be physically located in these markets to obtain competitive advantage. For a strategic-asset seeking FDI motive, the aim is to have access to different cultures, institutions and customer demands. Moreover, location-bound FSAs or knowledge-based tacit assets are acquired to optimize competitive advantage (Dunning, 1998).
Cross-border expansions cannot be classified by any single one of the abovementioned motives alone, as most firms aim for two or more motives per expansion (Dunning & Lundan, 2008).
In the aviation industry, these forces are important in deciding what location to choose. In route expansion decisions, these motives can clearly be justified (Warnock-Smith & Potter, 2005). Either in market seeking behaviour, as aim for additional passengers or with a strategic-asset seeking motive to get acquainted with local customs, to increase institutional familiarity and the for the exchange of localized tacit knowledge (Dunning, 1998). Another motive for strategic-asset seeking behaviour could be to enter an airport that functions as a large hub, enabling higher amount of connecting routes and transit passengers as a strategy to get ahead of competition. Efficiency- and resource seeking takes place in search for reducing costs through expansion, economies of scope and scale and gathering a larger amount of human resources (Yang, 2009). However, resource seeking motives are uncommon in the airline industry, since they are a service industry. Each of the other three motives drive MNEs internationalization in the airline industry.
2.8. The Industry Specificity of Regionalization: The Airline industry
Cross-border expansion patterns, motives and institutional effects depend on the MNEs specific industry. The concept of industry specificity explains that the extent of regionalization or globalization also differs depending on the industry (Rugman & Verbeke, 2004; Kolk et al., 2014; Paliwoda et al., 2009; Grosse, 2005). Rugman and Verbeke (2004) mention the distinction between the consumer electronics industry, where MNEs pursues global strategies and manufacturing industries mainly regional (Rugman & Verbeke, 2008a). However, the automotive industry (Rugman & Collinson, 2004) and services industries such as the retail and banking industry (Grosse, 2005; Paliwoda et al., 2009) follow different regionalization patterns. This concept of industry specificity adds to the relevance of studying the airline industry. As many forces in the
airline industry drive globalization on the one hand and regionalization on the other. Deregulation in the airline industry referred to the release of government authority to control the entry and exit fares, subsidies and mergers of airlines in each market. Additionally, the liberalization of global economies have changed the industry, which enabled airlines to expand globally (Héritier & Karagiannis, 2011; Wittmer & Bieger, 2011; Zhang et al., 2008).
On the other hand, the concept of regionalization is supported by existing research in the aviation industry. As recent research states that no airline would be able to pursue global operations without partners through strategic-alliances (for example: Star Alliance & One World) (Graham & Goetz, 2008). Rugman & Verbeke (2004) find that transportation industries, including the airline industry, have 50% of their sales in their home region. Except for Air France and British Airways, all other transportation companies in the study derive over 70% of sales in their home regions (Rugman & Verbeke, 2004).
The passenger airline industry discerns two players, that both follow fundamentally different strategies. The industry makes a distinction between LCCs and full-service carriers (FSCs). Button (2012) explains that LCCs fly point-to-point routes, while FSCs mainly pursue hub-and-spoke flights. LCCs offer low fares from cost minimization strategies. They unbundle the service model of FSCs, so the customer only pays what he uses and hence saves money (Button, 2012). When serving secondary airports, a decrease in production costs and operational costs can be achieved. LCCs do not have strategic-alliance agreements and thus show interesting patterns regarding the globalization/regionalization dilemma. If LCCs do not operate in strategic alliances and only have point-to-point flights, they refrain from pursuing global strategies (Graham & Goetz, 2008). LCCs fly direct routes of which the duration is limited by the capacity of their aircrafts. Consequently, the expectation is that LCCs pursue home-region strategies, whereas FSCs with their alliances could aim for global strategies.
2.9. Problem statement
As described in the literature review, internationalization strategies by LCCs in the ASEAN sub-region are expected to be influenced by forces on different levels in geographic space. First, on regional level. Regional integration leads to a lower degree of intra-regional LoF, which can consequently contribute to the reduction in transaction costs faced by LCCs when internationalizing (Rugman & Verbeke, 2005). With regards to the airline industry, the ASEAN sub-region works on the development of a unified strategy by introducing the ASEAN Single Aviation Market (ASAM). Although fare restrictions have been mitigated, capacity control and national protectionism are still high priority within this region (Forsyth, King, & Rodolfo, 2006). Therefore, the degree of regional integration is far from optimal. Nevertheless, this integration seems to be more powerful than global integration. This is propelled by the larger extent of inter-regional LoF compared to the degree of intra-regional LoF. A high degree of home-region integration is expected to result in LCCs mainly pursuing home-region strategies (Eden & Miller, 2001). Therefore, a lower degree of regional integration would naturally lead to large home-country effects (Osegowitsch & Sammartino, 2008).
WP. 1A. A high degree of regional integration, lowers intra-regional LoF and thus increases the likelihood of LCCs pursuing a home-region oriented strategy.
WP. 1B. Intra-regional LoF needs to be lower than inter-regional LoF for LCCs to have a home-region oriented strategy.
Besides regional integration, differences in institutions influence the likelihood of internationalization on a national level. Formal institutions, or the written rules and regulations that shape the business environment (North, 1991), if well-developed, can decrease transaction costs for a foreign organization in doing business abroad and decrease the degree of LoF. Additionally,
formal institutions can form barriers for a foreign organization through import barriers or FDI restrictions.
WP. 2A. A strong formal institutional framework in the host-country decreases the intra-regional LoF for a LCC abroad, which increases the amount of destinations across borders.
Internationalization strategies follow different motives (Dunning, 1998). Formal institutional voids could lead to a larger incentive for LCCs to locate across borders, because of the need for institutional entrepreneurship (Mair & Marti, 2009). To get familiar with host-markets’ national formal institutions, increase political leverage and overcome entrance barriers LCCs would expand under strategic-asset seeking motives.
WP. 2B. Weak formal institutions can explain strategic-asset seeking expansion motives by LCCs.
Besides formal institutions, informal institutions also influence the amount of cross-border expansions by LCCs. Informal institutions influence foreign firms’ likelihood to embed in its host-country through conflicting cultural traits and differences in social norms and behaviours (Hofstede, 1983; Kang & Jiang, 2012). Hence, locating in a ‘culturally’ comparable nation decreases transaction costs in cross-border expansions because of familiarity with customs and local demands.
WP. 3A. A comparable informal institutional framework in the host-country decreases LoF for LCCs and thus increases the number of cross-border destinations.
According to Dunning’s (1998) expansion motives, most airlines have market seeking motives for their route expansion strategies. When combining FDI expansion motives with informal institutions, expected is that under comparable informal institutional frameworks, with similar cultural traits,
customers feel less risk for friction while traveling (Crotts, 2004). Consequently, greater informal institutional comparability between nations leads to a larger potential for market seeking motives by foreign LCCs.
WP. 3B. Comparable informal institutions between the home and host country are expected to explain market seeking expansion motives by LCCs.
Besides influences on regional and national level, subnational level institutions are expected to have effect on LCCs internationalization strategies. Subnational levels in the airline industry combine city-level with airport-level analysis, since airports function to serve cities (Schaafsma, 2010). Strong formal institutions at the city-level are expected to decrease transaction costs and mitigate LoF. Global cities with strong formal institutional arrangements and attractive investment climates would thus be more attractive for LCCs to expand to (Goerzen et al., 2014). Also airports can offer interesting formal institutional incentives to airlines for flying to a certain destination (Francis et al., 2003). On the other hand, forces that form a weak subnational formal institutional environment are protectionist governance policies. A large amount of airports in the Asia-Pacific macro-region is governmentally owned and favours local carriers over international carriers (Hooper, 2002).
WP. 4A. A strong formal institutional framework at airport/city-level can play a significant role in attracting airlines to these destinations.
WP. 4B. A strong formal institutional framework on airport/city-level can compensate a weak national institutional framework and increase the amount of destinations across borders.
Strong formal institutions and global city endowments that attract LCCs to locate at specific airports or cities, could explain efficiency seeking FDI (Buckley et al., 2007; Yang, 2009). In the airline industry, locations might offer attractive resources as a larger availability of human resources, as global city locations have larger workforces. The availability of maintenance, sales and distribution facilities could lead to lower costs when expanding to an overseas destination.
WP. 4C. Strong formal institutional frameworks on airport/city-level are expected to explain efficiency seeking cross-border expansion motives.
By selecting specific destinations, airlines seek to stay ahead of their competition. Therefore, airlines are expected to pursue strategic-asset seeking FDI motives. They could aim to develop new hub locations across borders. These hub locations are yet developed because of strong formal institutions. Acquiring these hub locations leads to the attraction of passengers because of additional transit possibilities. Moreover, the tendency of MNEs locating in global cities with attractive formal institutional arrangements leads to the creation of knowledge networks and resource aggregation (McCann & Acs, 2011), which could be helpful in international expansion.
WP. 4D. Strong formal institutional frameworks on the airport/city-level are expected to explain strategic-asset seeking cross-border expansion motives.
The remainder of this thesis elaborates on the introduced working propositions and aims to seek supporting evidence. In next chapter, the research methodology used for this research is introduced.
3. Methodology
In the upcoming chapter, the research methodology is described. First, an elaboration on the research philosophy through an ontological and epistemological point-of-view is presented. This is followed by a justification for using a qualitative multiple case study research design. Afterwards, the case selection and the four quality criteria for the study, the data collection and analysis approach are discussed.
3.1. Research Philosophy
The research philosophy is the nature of knowledge used for this study or what the researcher perceives as truth (Saunders, Lewis, & Thornhill, 2009). With regards to ontology, or the nature of reality, there is a distinction between the subjective and objective approach. The subjective approach focuses on reality being something that is shaped by human experiences whereas in the objectivistic approach reality is seen as static and concrete (Morgan & Smircich, 1980). In this study an objectivistic stance towards facts is taken, assuming that these are external and independent from the researcher (Saunders et al., 2009). Coming from the ontological standpoint and logically evolving, the epistemology stance is a post-positivistic one. This concept is similar to positivism, for assuming a scientific approach to the development of knowledge and looking for relations between cause-and-effect (Saunders et al., 2009). However, through post-positivism, the idea that humans are bounded-rational is accepted (Wildemuth, 1993), no person can judge how the world is shaped or what is reality caused by biases in observation. That is why topics can best be viewed from multiple perspectives to get closest to the truth (Wildemuth, 1993). Post-positivism supports ‘methodological plurism’, which states that not a single method of science is defined to be the best and that this all depends on the research topic or knowledge to be gathered (Hirschheim, 1985). This enables the study to emphasize on the importance of contextual variables in a dynamic
and complex industry as the airline industry. The ‘methodological pluralism’ stance, in addition to the importance of contextual variables, enhance the choice of a qualitative case study research approach as explained underneath.
3.2. Qualitative Case Study Research Approach
Qualitative research adds interesting insights to complex international business theories (Saunders et al., 2009). As Gephart (2004) explains, qualitative research design uses an interactive, unstandardized data collection method, enabling to gather rich information and explore new areas of research and build new theories for the concepts in this study (Eisenhardt, 1989). This research explores the topic of route expansion strategies of LCCs and explains their differences across regions. A combination of Eisenhardt (1989) inductive view on research and aim for theory building with Yins’ (2009) deductive approach is made. This results in following Shepherd & Sutcliffe (2011) that catch on a bottom-up deductive approach, which enables the study to discover causal relationships and possible extension of existing theory, enhancing the explanatory nature.
To explain the phenomenon of LCCs route expansions in the ASEAN sub-region a qualitative multiple-case study design (Yin, 2009) is used. Which is characterized as a complete study of a contemporary phenomenon in its real-life context (Yin, 2009) and supports in the explanation of the LCC phenomenon, their airport choices, and subsequent drivers. The airline industry is dynamic and developments in the status quo are of everyday business (Johnson, 2009). Studying this in its natural context in a specific industry, is seen as most valuable and relevant, as it is incomparable to other industries (Yin, 2009). Yin (2009) states that case study research design is most suitable when a “how” or “why” question is asked, which is the case for this study.
Case studies can involve single or multiple cases and different levels of embedded units of analysis (Yin, 2009). For this study, a multiple case study design with each over five embedded
units of analysis were selected to perform a within-case and cross-case analysis, so that findings could be compared (Saunders et al., 2009). The next section presents the cases and their embedded units of analysis. The comparison of the findings comes from the concept of replication logic (Eisenhardt, 1989; Yin, 2009). Replication logic sees multiple cases as separate experiments that can be either replicated (literal replication) or contrasted (theoretical replication). For this study, the literal replication logic increases the generalizability of findings. On the one hand, by comparing the embedded units of analysis in a within-case and on the other hand a cross-case comparison.
Case studies use a variety of data sources to explain a phenomenon from different viewpoints. This concept is called triangulation. The data sources can be qualitative, quantitative or both (Eisenhardt, 1989). The case study method is most suitable for the indicated research question as it can provide a thorough understanding of city-level attraction and formal institutional forces influencing LoF and so ASEAN LCCs destination strategies. There are many factors influencing location strategies for airlines, so the phenomenon is too complex to study using one data source.
3.3. Case Selection for Study
This research focuses on location choices for expansions of LCCs in the ASEAN sub-region. The research approaches these location choices from a firm perspective, highlighting the IB lens. The need for cross-case literal replication (Yin, 2009), judges for the selection of two case studies, the location choices of two LCCs and their subsidiaries in the ASEAN sub-region. The inclusion of the selected LCCs’ subsidiaries enhanced the results through within-case literal replication. These LCCs in the ASEAN sub-region are selected to get complete access to data sources. The large number of expansions for the two cases, and their subcases provide a grounded foundation to study the working propositions. Lion Air and AirAsia are the selected MNEs for this study. They are the largest LCCs based on amount of seat capacity within the ASEAN sub-region (CAPA, 2014b).
Airline
Group Subsidiary
Home
Country Routes Fleet Revenue
Passengers Carried
Initiated
flights Hubs Strategy
AirAsia Malaysia terminated) 59 (two 80 24.3 million 2001
Kuala Lumpur, Kota Kinabalu, Penang, Johor Bahru, Kuching & Langkawi
AirAsia is a Malaysian LCC, operating from Kuala Lumpur. It is the largest airline in Malaysia by fleet size and routes. Its unique aspect to operate with 0,023 USD cents per available seat kilometre and a turnaround time of 25 minutes and an aircraft utilization time of 13 hours per day. Operating with 7 affiliates in ASEAN, and 1 in India, Air-Asia is seen to be the pioneer in low-cost travel in the ASEAN sub-region. AirAsia X Malaysia 18 (13 terminated) 20 3.6 million 2007 Kuala Lumpur Indonesia AirAsia Indonesia 16 (7 terminated) 24 6.5 million 2005 Jakarta, Denpasar, Surabaya, Bandung & Medan Indonesia AirAsia X Indonesia 2 (2 terminated) 2 - 2014 Denpasar Philippines AirAsia Philippines 17 (2 terminated) 13 3.6 million 2012 Manila, Cebu, Puerto Princesa & Kalibo
Thai AirAsia Thailand 49 (5
terminated) 45 14.8 million 2004
Bangkok, Phuket, Chiang Mai, Krabi & Pattaya
Thai AirAsia X Thailand 7 (1
terminated) 5 - 2014
Bangkok Total 75 unique 168 – 189 billion $1.4 50.6 million
Lion Air
Indonesia 44 110 14.7 million 2000 Jakarta, Surabaya, Batam & Makassar PT Airlines Group is an Lion Mentari Indonesian LCC. Lion air is growing aggressively. By constantly innovating, they gain market share. They are second LCC in the ASEAN sub-region, behind AirAsia. Thai Lion Air Thailand terminated) 14 (5 18 - 2013 Bangkok
Wings Air Indonesia 56 48 - 2003 Manado, Denpasar,
Medan & Jakarta Malindo Air Malaysia 39 (2
terminated) 27 - 2013
Kuala Lumpur
Batik Air Indonesia 29 33 - 2013 Jakarta
Total 182 –
116 unique 236
$ 1.6
billion1 53.0 million
Table 1: Case Specification, data gathered from company website and annual report (Lion Air & AirAsia)
1
The LCCs selected as cases are the largest within the studied region, and well-spoken about in prior literature and in the news, which eases the availability of data for this study. AirAsia is a publicly listed firm, aiding the availability of information. Lion Air plans an initial public offering (IPO) in 2017 therefore it has sufficient amounts of public information available. A list of all route expansions of the respective airlines is presented in the appendix 2. The subsidiaries “AirAsia India” and “AirAsia Japan” are excluded from the case study, as India and Japan are not part of the ASEAN sub-region and will thus not add value to our knowledge on location decisions in this region. Please find an overview and description of the respective cases in table 1.
3.4. Quality criteria
To undermine quality risks for this study, the following four clear criteria are honoured; construct validity, external validity, internal validity and reliability (Yin, 2009). This section explains the choices in line with the quality criteria regarding the research methodology.
The use of database data enabled primary data collection. The data comes from an archive of articles. For data sampling, a structured approach was used and focal articles were selected process-wise. In this way, the study measures what it intends to measure. Construct validity defines whether a study measures what it actually intended to measure (Saunders et al., 2009; Yin, 2009), or whether the correct measures are used. Multiple sources of evidence are used by taking a data triangulation approach (Gibbert & Ruigrok, 2010). The study combines company-related data sources, newspaper articles from the LexisNexis database and reports of official sources from the airline industry.
External validity, or the ability to translate the findings of the study to other research settings (Saunders et al., 2009), is guaranteed by using a multiple case study approach. The extent to which theories identified in case studies are generalizable to another research settings is a much doubted fact (Saunders et al., 2009; Yin, 2009). Although, multiple cases generate robust and rigorous
theory compared to a single case research design (Eisenhardt, 1989). Which is enhanced by the concept of replication logic (Yin, 2009). The comparison of the outcomes for the two LCCs and their subsidiaries enables both within and cross-case literal replication.
The study has an explanatory nature. For this type of research, the establishment of causal relations is crucial. The theoretical working propositions in this study are based on literature, which supports the development of valid cause and effect relations (Yin, 2009). Combining academic literature with empirical findings leads to explanation building as suggested by Gibbert & Ruigrok (2010). Also, within- and cross-case pattern matching enhances internal validity (Yin, 2009).
Reliability aims for structured data collection and a clear analysis approach (Yin, 2009). The structured case study approach that shapes this research proved reliable before. A structured approach enables others to re-perform the study and find similar results. All data is gathered in a case study database. An explanation of the data collection and analysis strategy in the latter of this chapter enables further support for reliability.
3.5. Data collection
The data gathered for this study constitutes of documentary data gathered from multiple sources, increasing construct validity. The data collection for the cases starts from inception of the two
LCCs, whereas Lion Air started in 2000 and AirAsia in 2002. Thus, starting from 1January 2000
until today, to show a longitudinal pattern in internationalization other than just highlighting static events. Qualitative data was collected through annual reports to find respective route expansions for each of the selected cases. Also, official timetables are considered to identify the location choices. Furthermore, newspaper articles from primary financial newspapers in the Asia-Pacific macro-region are scrutinized. Articles from the Straits Times, New Straits Times, the Bangkok post and Jakarta Post are drawn from the LexisNexis Database. The following company names are used as
search terms to draw sufficient results: ‘AirAsia’ or ‘AirAsia Group’ (Including subsidiaries ‘AirAsia X’, ‘Indonesia AirAsia’, ‘Philippines AirAsia’ or ‘AirAsia Zest’, ‘Thai AirAsia’ ‘Indonesia AirAsia X’ and Thai AirAsia X’) and ‘Lion Air’ (Including subsidiaries ‘Batik Air’, ‘Thai Lion Air’, ‘Malindo Air’ and ‘Wings Air’).
Airline
Group Subsidiaries
LexisNexis
Articles Used Articles Annual Reports
CAPA analysis
reports Malaysia AirAsia 1,654 75 downloads Annual Report 2001 - 2015 15 reports Indonesia AirAsia 1,457 36 downloads Annual Report 2005 - 2015 5 reports Thai AirAsia 1,882 54 downloads Annual Report 2005 - 2015 10 reports Philippines AirAsia / PHL 202 23 downloads Annual Report 2012 - 2015 2 reports Thai AirAsia X
248 26 downloads Annual Report 2014 &
2015 2 reports
Indonesia AirAsia X 88 9 downloads Annual Report 2014 &
2015 2 reports
AirAsia X 3,000+ 101 downloads Annual Report 2007 - 2015 16 reports
Lion Air 2,063 59 downloads - 4 reports
Batik Air 122 9 downloads - 3 reports
Wings Air 2 1 download - 1 report
Thai Lion Air 164 20 downloads - 1 report
Malindo Air 551 55 downloads - 5 reports
Total 11,433 468 54 75
Table 2: Data Sources
The analytical reports from the Centre of Aviation (CAPA) provide additional data on route expansion motives and governmental implications per subsidiary. By using multiple data sources, the study can increase its quality by improving the validity and reliability of the case study (Eisenhardt, 1989; Saunders et al., 2009). Table 2 provides an overview of the respective data sources. Specific data sources for the extensive analytical tables in the appendices and the airport categorization are available in Appendix 3.
3.6. Data Analysis
Data analysis software (CAQDAS) can be a helpful tool in preparing your data for qualitative analysis in coding and categorizing large amounts of data (Saunders et al., 2009; Gephart, 2004;
Yin, 2009; Welsh, 2002). This will save time compared to using manual coding, for the large numbers of articles analysed for this research (Welsh, 2002). First, the location choices of the two LCCs are gathered by studying the annual reports and timetables. Afterwards, the overall strategies of both carriers were studied and described.
The large amount of airports necessary to study provide a clear reasoning for classifying these into groups. By classifying these airports in homogeneous groups, a clear foundation for the study was created (Adikariwattage, de Barros, Wirasinghe, & Ruwanpura, 2012; Graham, 1998; Malighetti, Paleari, & Redondi, 2009). Adikariwattage et al. (2012) state that the following concepts could be used to classify airports: size, role of an airport and geographic location. By having limited access to data on passenger traffic statistics to measure size, two other factors are included, namely the role of an airport (International transits, hubs, tourist destination) and the geographic location (Malighetti et al., 2009). the airports were divided into categories based on the seven airport categories as introduced by Graham (1998), however minimized those to five by grouping two categories to form the airport categorization as presented in table 3. First, the two categories that covered primary cities are merged into the international hub category. Secondly, peripheral core cities and domestic hub cities are merged. The airports studied had strong similarities and overlapped with both categories. Grahams study (1998) used 1995 statistics. At that moment air traffic in the Asia-Pacific macro-region was still in its infancy. This creates the urge to compare the existing numbers with a multiplier. In 1995, there was a yearly amount of passenger traffic of 1,455 billion; in 2015, this was 3,441 billion. This translates to a growth number of 137%. This number is used in the study to calculate the increase of amount of passengers per year to compensate for the growth of the aviation industry over time. Appendix 2 provides an overview of the categorization per airport destination and Appendix 3 shows the sources utilized in the categorization process.
Airport Category1 Geographic location Size2 Description Amount of
airports3
1. International hub
Located near world city and seen as core of global airport networks
16.5 -19.5 mil.
International and intercontinental hubs. Connecting world cities
21
2. Regional hub Located near large city, connecting the region 7- 15.5 mil. Regional airport connecting hub-cities within one region 45 3. Domestic hub
Secondary airport in large city, central domestic location
2.5 - 25 mil.
Airports serving peripheral
core cities. 35
4. Single leisure destination
Airports serving leisure
destinations 2 – 30 mil.
Focused on in-bound tourism, few other functions, no onward connections
11 5. Single local
destination
Local airport close to
smaller cities Under 2 mil.
Serving one destination
without onward connections 87
Table 3: Airport Categorization.
1 The airport categories are based on the study by Graham (1998) 2 Size in passenger traffic statistics per year
3 The number of airports that the case study firms expanded to and their respective categorization
Besides Airport Categorizations, the study uses an industry specific measure of regionalization (Kolk et al., 2014; Rugman & Collinson, 2004). The LCCs share limited information about global sales dispersion. Thus regionalization is identified by comparing the amount of domestic with international and/or regional destinations (Rugman & Verbeke, 2004). For example, if the majority of destinations is domestic, this indicates a large home-country effect.
In the LexisNexis database, articles are identified that included the airline name, as specialized in the table above. Article titles were scanned for relevance, and then selected and downloaded from the database. All of these documents were imported into NVivo, which is yet familiarized by the researcher and advised by Myers (2013), to be prepared for analysis and thus be able to test the before formed working propositions (Saunders et al., 2009). Categorization of the data was necessary in the search for patterns to test the propositions. Categorising data is the process of “developing meaningful categories and attaching those categories that are relevant to specific units of data” (Saunders et al., 2009, p. 194). Thematic coding helps the development of themes and subthemes from the working propositions (Braun & Clarke, 2006; Ryan & Bernard, 2003). These (sub-) themes are extracted from the theoretical bases of this study and develop during
