Preferential Slot Allocation for LCCs at a Congested Airport, and Airfare: The Case of Haneda Airport in Tokyo

Abstract

AbstractFour LCCs (Low Cost Carriers) had entered into the Japanese domestic air market between 1998 and 2006 as a result of the deregulation of new entries. The government had preferentially assigned these four LCCs slots at Haneda airport to reduce airfares by stimulating market competition among LCCs and FSCs (Full Service Carriers), and to stabilize LCCs’ administration by giving them highly demanded routes from the primary airport in Tokyo. However, all of the four LCCs have faced difficulties in gaining stable independent administration and have been supported by the rival FSC, ANA as a stock holder. Only one LCC, Skymark, has maintained independent flight operations and pricing while the other three LCCs have operated codeshare flights with ANA and became complemental carriers of the ANA network. We estimated the yield function and found that only Skymark had induced a lower fare of its rival airlines. The codeshare flights had started to make the LCCs administration stable by the brand power of ANA. On the other hand, codesharing had significantly reduced the price competition between FSCs and LCCs. Therefore, slot allocation should be conducted with consideration of codesharing.KeywordsAirfareSlot allocationLCCCongested airportCode sharing