Does innovation give incentives to innovate in air transport?

Abstract : he objective of this empirical paper is to study which factors give incentives to an airline to operate a disruptive innovated aircraft on a route. In particular, we want to address if competitors’ behaviours impact airline’s choice in terms of innovation use. We consider as innovation the introduction of the Airbus 380 (A380) and assess the probability for an A380’s owner to use this aircraft type on a route, given its own features as well as route’s characteristics. The routes where the A380 has been operated during the last 10 years constitute our panel dataset. We use the OAG database to collect information regarding airline supply in capacities. A discrete choice model applied to this panel is used. We show that the incentive to use the innovation for an airline is driven by its competitors’ use of the same innovation on the route, or even to the threat that competitors use this innovation on the route. Our model also confirms that congestion issues at airports are significant drivers for adopting the A380 innovation. However, economic recessions and fuel price increases would not be in favor of the A380 adoption. We show that the incentives to use innovation decrease as the market power of the competitors increases on the route. These results highlight the importance of airlines’ market positioning on their strategic choices of innovation.