Quantifying the impact of low-cost carriers on international air passenger movements to and from major airports in Asia

Abstract

Asia is the world’s most rapidly growing aviation market, and the region now cradles the largest number of low-cost carriers (LCCs). This paper identifies the causal effect of LCC entry on international air passenger flows to and from 30 major airports in Asia using reservation-based international air passenger traffic data for years 2010 and 2015 (N=123,148). In order to bypass the endogeneity arising from self selection of LCCs’ entry decision as well as confounding by unobservables, the paper utilizes multiple identification strategies, namely, difference-in-differences (DID), propensity score matching coupled with DID, DID with inverse-probability weighted regression adjustment, and a fuzzy regression discontinuity design (RDD) with the maximum flight range of an aircraft typically used by LCCs as the cutoff. The results consistently show that LCC impact on international air passenger traffic is strictly positive, and is decreasing over distance with slight convexity. Another finding is that the impact of LCC entry net of competition effect holding market concentration constant accounts for the major part of the overall impact, i.e. LCC replacing full-service carriers greatly increases international air passenger movements in Asia.