Entry effect of low-cost carriers on airport-pairs demand model using market concentration approach

Abstract

The trend of open sky policies and growth of low-cost airlines, the topic of airport-pairs demand is gradually being addressed in the golden aviation circle of Northeast Asia. The variety of flight services among the four major metropolises with dual-airport systems leads to a competition-cooperation relationship existing between various airports and airlines. Therefore, this study investigates the causal relationship between the route-level passenger demand and influential factors using aggregate data collected through website observations. The empirical study focuses on direct flights of airport-pair routes among Taipei, Shanghai, Seoul, and Tokyo. Results of the passenger regression model indicate that frequency, code-share, and morning flights have positive impacts on increasing passenger numbers for airlines. Further, the market concentration degree of Herfindahl-Hirschman Index and entry effect of low-cost carriers are important for the route-level passenger demand. In addition, routes with departures and arrivals in hub airports have a considerable attraction relative to other airport-pair routes. Finally, the proposed passenger model performs well in predicting market share, especially for routes with high demand.