Airline Management Strategies In Vietnam Air Transport Market Applying Game Theory

Abstract

In the current time, air transport has significantly thrived and gradually become one of the most convenient and frequently used options for transportation in Vietnamese customers’ mindset. Since the very first existence of domestic airline in Vietnam with solely a Full-service carrier (FSC) operated in a monopoly market, the airline market nowadays flourishes with various types of airline which differs from provided service to the air ticket price. In the initial time, FSC founded its subsidiary low-cost carriers (SL) to grasp the medium to low-income with high price elasticity customers, however, was not operated effectively. Notwithstanding the sombre situation of lowbudget airline, another low-cost carrier (LCC) has joined the air transport market in Vietnam. This has increased the competitiveness of the market and triggered FSC for a novel management strategy not only for itself but also for its subsidiary LCC to adapt with the changes. This study deals with finding an ideal strategy for airlines in the Vietnam aviation industry with regard to airfare and flight schedule and simultaneously maximizes their profit. The applied methods are Genetic Algorithm (GA) and Game theory (GT). The employed GA seeks for nearly maximized profit of each airline. Following that, GT concept, in detail, the repeated game with One-shot simultaneous move game as the base solves the profit maximization problem between two players (Player 1 is the group of FSC and its subsidiary LCC; Player 2 is the other LCC). The utilised GT focuses on the role of SL to the future business strategy of FSC and considers the potential cooperation among three types of airlines to react with other foreign airlines penetrating Vietnam's aviation industry. The model is best suited for airlines with the same service and operating only nonstop direct flight routes.