Measuring the impact of long-haul low-cost carriers on lowering fares: A quasi-experimental design to assess the pre-COVID market

Abstract

This paper aims to investigate the impact of the introduction of the long-haul low cost carrier in the North Atlantic market to present the competitive situation before the COVID-19. There are a number of challenges in estimating the incremental effect of LH LCC. Therefore, several strategies were taken. Firstly, a difference in differences estimation and propensity score matched methods were employed using six major routes in the North Atlantic market with IATA's ticket sale data from January 2015 to December 2019; a granulated data to present the characteristics of flight and economy class fares. The outcomes indicate that a 17.2–20.6% fare reduction in average on the routes where Norwegian operated during 2015 and 2019 after Norwegian's entry, compared to what it would have happened if they didn't operate. It implies the LH LCC entry lowered fares significantly, and the level of fare competition in the North Atlantic market before the COVID-19 was high. In addition, a certain level of viability as an LH LCC has been implicated. This output can be used for the airline's strategic implication and the policy proposition, particularly when LCC expands the longer routes after the COVID recovery. Frequent and specific (detailed) assessments by market and period are imperative.