Airline Delays, Congestion Internalization and Non-Price Spillover Effects of Low Cost Carrier Entry

Abstract

This paper develops an econometric model of flight delays to investigate the influence of competition and dominance on the incentives of carriers to maintain on-time performance. We consider both the route and the airport levels to inspect the local and global effects of competition, with a unifying framework to test the hypotheses of 1. airport congestion internalization and 2. the market competition-quality relationship in a single econometric model. In particular, we examine the impacts of the entry of low cost carriers (LCC) on the flight delays of incumbent full service carriers in the Brazilian airline industry. The main results indicate a highly significant effect of airport congestion self-internalization in parallel with route-level quality competition. Additionally, the potential competition caused by LCC presence provokes a global effect that suggests the existence of non-price spillovers of the LCC entry to non-entered routes.