Airline competition and domestic US airfares: A comprehensive reappraisal

Abstract

This paper extends recent research on the fare impacts of low-cost carriers, incorporating its adjacent-airport approach to offer a comprehensive picture of the competitive effects of both legacy carriers and low-cost carriers. The analysis measures the impact of in-market (i.e., airport-pair) competition and adjacent competition for both types of carriers, while also capturing the impact of potential competition from low-cost carriers. Moreover, this comprehensive approach is applied separately to two different types of markets, nonstop and connecting, which have not been simultaneously treated before within a single study. The results show that most forms of legacy-carrier competition have weak effects on average fares. Low-cost carrier competition, on the other hand, has dramatic fare impacts, whether it occurs on the airport-pair, at adjacent airports, or as potential competition. ► Growth of low-cost carriers (LCCs) has changed the landscape of airline competition. ► This paper offers a comprehensive picture of the competitive effects of both legacy carriers and LCCs. ► The impact of both in-market and adjacent competition is measured for both types of carriers. ► This approach is applied separately to two different types of markets: nonstop and connecting. ► Legacy competition has a weak effect on average fares and LCC competition a dramatic effect.