Drivers of short-term essential air service operations: Load factor, pricing, and subsidy policies in China's domestic air market

Abstract

This study analyzes the impact of the temporary flight subsidy policy on the operational performance of China's domestic air transport market. Using panel data from 42 days between May 7 and June 17, 2022, and applying a dynamic panel model with time-invariant variables, the study explores the factors influencing average load factor and average ticket price under short-term basic air service conditions. The results reveal that, during the pandemic, load factors exhibited weak dependence on historical data, with airlines adjusting to real-time demand fluctuations. Additionally, the flight subsidy policy failed to meet its intended goals, leading to a reduction in overall load factors, particularly for China Southern, China Eastern, and Hainan Airlines, while Air China demonstrated more flexibility in adapting to the policy. The study also identifies the significant influence of route distance and airport size on both load factors and ticket prices, with longer routes and major hub airports commanding higher prices. These findings suggest that future subsidy policies should be more flexible and tailored to specific market conditions to effectively support the recovery and long-term sustainability of the aviation industry.