Analyzing the impacts on passenger yield of incumbent companies after the entry of a new company into the aviation market: The case of Brazil

Abstract

The public air transport market is generally oligopolistic, meaning that the market strategies of some companies can influence the decisions of rivals and impact consumer prices. This sector has been marked by a large flow of airline entries and exits. Considering this scenario, the objective of this work is to evaluate how the revenue from airline tickets of incumbent companies in the national aviation market in Brazil was impacted after the entry of a new company. A fixed-effects Difference-in-Differences model (DID) using a feasible generalized least squares (FGLS) estimator with panel data is used to assess this impact. To assess the impact of the entrant on yield dispersion, we apply the regression equation to P90 and P10 of the distribution. We also applied the equation, considering the Gini coefficient as the dependent variable. The results showed that the average income of incumbent companies reduced by an estimated magnitude of 5.9% in the period after the new company entered the market. Our findings also indicate an increase in distribution dispersion in the period following market entry, with a more pronounced reduction of 19% in the P10 and 1.5% in the P90. We conclude that the entry of the new company was readily assimilated by the incumbents, so that the competitive effect can explain the identified reduction in average income. The entry of a new competitor was especially beneficial to consumers in the lower tail of the distribution.