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Yahua Zhang and Anming Zhang

China and India have attracted the attention of the world in the last two decades as powerhouses of economic growth. However, scholarly studies comparing the development of two aviation markets and the market outcomes for the two countries are lacking. This chapter offers the first such comparative study, with a focus on the efficiency of airlines of the two countries. The study reviews the evolution of the air transport industry in China and India, and then assesses the efficiency performances of the state-owned and privately-owned airlines in the two markets. It is found that Indian carriers tend to be more efficient than their Chinese counterparts, and that Air India and Spring Airlines are the leaders in terms of achieving technical efficiency. The dominant status of the private airlines in the Indian market does not come by chance. The analysis shows that China’s aviation policy has long been hostile to the private carriers, and various obstacles to their expansion and growth still remain. In contrast, Indian private airlines, especially the low-cost carriers, have enjoyed more freedom and received support from a comprehensive air liberalization programme.

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Yahua Zhang, Faqin Lin and Anming Zhang

For more than 50 years, the gravity model has performed well in empirical studies on international trade flows. Its strong economic theoretical foundations have been acknowledged in the last 20 years. Its applications in air transport research remain relatively sparse. A review of the air transport literature employing gravity models in the last ten years shows that most of the studies have not accounted for the advances in empirical estimation techniques developed in international economics. We apply the gravity model in China’s aviation market using the Poisson pseudo-maximum likelihood (PPML) approach with fixed effects. The results indicate an enormous positive effect of the continuous liberalisation in the air transport sector in promoting the demand for air travel. The emergence of high-speed rail (HSR) has been a serious threat to China’s airline industry and could result in a significant reduction in the number of air passengers when given controls for other factors.