The impact of low cost carriers on non-aeronautical revenues in airport: An empirical study of UK airports

Abstract

The purpose of this study is to clarify the impact of low cost carriers (LCCs) on non-aeronautical revenues in 26 UK airports from 1999 to 2008. Increasingly non-aeronautical revenues have become an important source for airport revenue. Our literature review highlights that there is little consensus in empirical results concerning LCC impact on non-aeronautical revenues, some of these report positive impact while others show negative impact. We estimate a non-aeronautical revenue function which includes frequency share of LCC, Air Transport Movements (ATMs), number of passengers and population of hinterland of each observed airports as explanatory variables. In addition to this, we produce marginal revenue estimates for both the case of capacity constrained and capacity unconstrained circumstance in airports. As a result, in the case of a non-capacity constrained airport, on average, the marginal revenue of an additional LCC ATM is £147 while for non-LCC ATM it is £226. On the other hand, in the case of a capacity constrained airport, on average, substituting one non-LCC ATM with an LCC ATM reduces revenue by £79.