105 / 2024-04-20 11:29:53

Subsidy Policy and Air cargo Network Choice under Supply Uncertainty

Government subsidy,Air cargo,Supply uncertainty,Network strategy,Game theory

To promote air cargo industry and stable the capacity supply, the government increasingly implements the subsidy policy to guide airlines to adjust their air cargo networks and redeploy all-cargo capacity. However, part of the governments over-subsidizes the industry, leading to excessive financial pressure and unsustainable implementation of the subsidy policy. This paper investigates the best network choice for the airline and the optimal subsidy policy for the government to subsidize the airline considering the effect of supply uncertainty. Our analysis shows the following. Government subsidy policy will be an important factor influencing airline’s capacity deployment and network choice. For any given loading rate, when subsidy level is low, the airline doesn’t deploy the all-cargo capacity. The airline will choose the network strategies which adopt the hybrid capacity deployment. Especially, we can observe that the airline may only uses the all-cargo capacity when the subsidy level is significant high. In addition, we obtain the optimal level of government subsidy to maximize social welfare and discuss the problem of whether the government needs to implement subsidy. We surprisingly find that social welfare is not improved when the subsidy level is higher than the minimum level of subsidy for a given strategy. Therefore, the government should establish a reasonable subsidy exit mechanism to deal with the negative impacts of the subsidy. Our study also demonstrates the impact of all-cargo capacity constraints on airline’s decision making. When all-cargo capacity constraints exist, airline’s decisions will be subject to two types of market regulation. Meanwhile, the government needs to consider factors such as supply uncertainty, capacity constraint and subsidy when it develops the subsidy policy.