Entry Of Low-cost Carriers Research Articles

The Liberalisation of Air Transport and the Impacts on Travel and Tourism: The Case of the Azores Archipelago

This paper intends to fill a gap by analysing the changes wrought by full air liberalisation and its impacts on travel and tourism in the Azores archipelago. This study examines the Tourism Planning Plan of the Autonomous Region of the Azores (POTRAA), the new air transport model and several statistics related to air transport and tourism dynamics before and after the liberalisation, which took place in 2015. Time series analyses were used, and the period under analysis was defined (2013–2022). The results show that the entry of low-cost carriers (LCCs) resulted in flag carriers having to change to keep being competitive. Furthermore, a more extensive exposure of the destination through the LCCs created opportunities for all airlines. The results directly related to tourism include tourist numbers increasing in inter-island, national, and international flights, new routes opening to Europe and the USA, higher accommodation occupancy, and market diversification.

Financial Crisis at Jet Airways Limited: Turnaround or Bankruptcy

In 1992, Naresh Goyal started on a journey to build the best airline in India, Jet Airways. With rising market share and revenues, Jet Airways began climbing up the ladder of success. It gradually became one of the household names in the Indian aviation sector. In 2005, it came up with an initial public offering (IPO) to reach greater heights with large investments from the funding raised. A ‘paradigm shift’ in the Indian airline business came in 2006 with the increased competition and entry of low-cost carriers. The rise in the competition impacted Jet’s turnover, which was ultimately reflected in the diminishing profitability margins. With a series of industry challenges and questionable managerial decisions, Jet became a debt-ridden and loss-making enterprise from being one of the leaders in the aviation sector. Eventually, in April 2019, Jet Airways temporarily ceased its operations because of a lack of funding available to sustain it. The consortium of lenders, led by State Bank of India (SBI), faced a serious dilemma; whether to revive the airline by looking for potential investors or declare Jet bankrupt and begin the bankruptcy proceedings.

Which is a stronger competitor, High Speed Rail, or Low Cost Carrier, to Full Service Carrier? – Effects of HSR network extension and LCC entry on FSC's airfare in Japan

In Japan, High Speed Rail (HSR) extended its network in 2011 and 2015, and Low Cost Carriers (LCC) entered into the domestic airline market in 2012. We compared the effects of the extension of the HSR network and the entry of LCCs on the airfares of the incumbent Full Service Carriers (FSC). We conducted Difference in Differences analysis with passenger level data to evaluate these market changes, and found that the effects of the HSR extension on FSC's airfares were consistently negative and larger in the short haul markets, while the effects of the entry of LCCs were inconsistent. HSR seems to be a stronger competitor than LCC to FSC and this finding could be affected by capacity, which is large for HSR while small for the LCCs.

Entry pattern of low-cost carriers in New Zealand - The impact of domestic and trans-Tasman market factors

This study empirically examines the route entry decision of Jetstar NZ, a low-cost carrier (LCC), in New Zealand's duopolistic domestic aviation market between 2010 and 2016. The estimation controls for route characteristics, airline spatial network, and airline competition variables in both New Zealand's domestic market and the adjacent trans-Tasman markets linking Australia and New Zealand. The empirical results suggest that the favorable regional socioeconomic and tourism factors helped Jetstar NZ launch its service into a route. The LCC's entry decisions on domestic routes are not sensitive to airline competition within the same market but are influenced by the carrier's own operation and airline competition in the international Tasman market. Our study suggests that there are different sources of network effects for LCCs operating point-to-point travel demands. The "airline-in-airline" (AinA) strategy allows airlines (Jetstar and Qantas) within the same group to achieve certain synergy and competition benefits, but certain network effects can only be obtained between the same types of carriers. We also find preliminary evidence of spill-over effects, through which international liberalization influences competition in the domestic market.

Have Low-Cost Carriers Crowded Out Full Services and Charter Carriers in Tourism Destinations? A Trivariate Structural Time Series Analysis

Long-haul tourist arrivals depend on the airline market, its size, and the degree of competition. This article studies the entry and exit of full service carriers (FSCs), charter carriers (CCs) and low-cost carriers (LCCs) from two origins: the United Kingdom and Germany, and five sun-and-beach destinations in Spain. The relationship among all types of airlines is captured with a trivariate structural time series model to disentangle the airlines’ responses under common shocks of airlines’ entry and/or exit and provides estimates of immediate responses and indicators of responses over time. The results show that in the British market, the entry of LCCs has crowded out FSCs and CCs. However, in the German market, the results are heterogeneous and overall do not support the existence of such crowding out effect.

Airport capacity and entry deterrence: Low cost versus full service airlines

We study entry deterrence in air transport markets with a full-service (FS) carrier (the incumbent) and a low-cost (LC) carrier (the potential entrant). We consider a vertically differentiated product model where airlines have different operating cost and different generalized prices so they compete in ticket prices and frequencies. Thus, more frequency allows airlines to increase ticket prices without losing demand. In this context, we show that the incumbent may increase the frequency offered in order to deter the LC carrier entry. We show that if the airport capacity is low enough the LC carrier entry can be easily blocked or deterred. However, if the airport capacity is sufficiently high, the LC carrier entry must be accommodated. Regulators should take these results into account in order to promote competition among airlines.

Ownership and pricing response to entry

I explore state-owned and privately-owned incumbents’ differential pricing responses to low cost carrier (LCC) entry in the international airline market. I find that privately-owned incumbents substantively cut prices in response to LCC entry, whereas state-owned incumbents do not. The differential responses of state-owned vs. privately-owned is more considerable on the slot-restricted routes, where incumbents have monopolistic power. In addition, Chinese airlines and Gulf carriers who are aggressively expanding behave differently from other state-owned carriers.

Scale economies in the Korean airline industry since the entry of low-cost carriers

This paper investigates how the economies of scale in the Korean airline industry have changed since the emergence of low-cost carriers (LCCs). Our sample consists of 66 firm-years from 2008 to 2017. We estimate the translog cost function (TCF) to determine the changes in scale economies during the sample period. The TCF represented airlines' cost function more appropriately than the Cobb-Douglas model. The estimated cost function suggests that overall economies of scale have prevailed in the Korean airline industry since the entry of LCCs. Depending on the type of airline business, scale economies seem to be exhausted for full-service carriers, whereas LCCs have enjoyed economies of scale.

Scale economies in the Korean airline industry since the entry of low-cost carriers

This paper investigates how the economies of scale in the Korean airline industry have changed since the emergence of low-cost carriers (LCCs). Our sample consists of 66 firm-years from 2008 to 2017. We estimate the translog cost function (TCF) to determine the changes in scale economies during the sample period. The TCF represented airlines' cost function more appropriately than the Cobb-Douglas model. The estimated cost function suggests that overall economies of scale have prevailed in the Korean airline industry since the entry of LCCs. Depending on the type of airline business, scale economies seem to be exhausted for full-service carriers, whereas LCCs have enjoyed economies of scale.

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

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.

Geographic structure and regional socio-economic impact of low-cost airlines in selected cities of Central and Eastern Europe: the role model for Belarus.

The goal of this article is to analyse the structure of geographic presence and the socio-economic impact of low-cost carriers (LCCs) in the selected countries of Central and Eastern Europe (neighbouring the Republic of Belarus – Poland, Lithuania, Latvia, Ukraine and Russia). The model of the current geographic configuration of the LCCs network from the cities and airports with the closest proximity to Belarus was designed. The current market trends show that the major LCCs on the market are Wizz Air and Ryanair, and they are increasing their share at the markets of the countries analysed (particularly after Ryanair entered Ukrainian market in 2018). The overview of socio-economic impact of LCCs is discussed with accent on the possible benefits and outcomes of LCCs entry to the Republic of Belarus.

Key determinants of airline pricing and air travel demand in China and India: Policy, ownership, and LCC competition

As two of the fastest-growing economies, China and India share many similarities. However, the air transport sector of the two countries exhibits substantial differences 30 years after deregulation. Private and low-cost airlines have become dominant players in the Indian airline market while the state-owned airlines still enjoy a dominant status in the Chinese market. The econometric analysis of this research suggests that the presence of a low-cost carrier (LCC) on a route has the effect of reducing the airfare and stimulating the demand for air travel in India, no matter the LCC presence is measured by market shares or dummies. Chinese LCCs have similar competitive effects only when the LCC entry is measured by dummy variables. Airport concentration in India could lead to cost savings and thus lower airfares, but this did not occur in China due largely to the lack of a culture of antitrust compliance. In both countries, airport concentration is positively associated with traffic demand. In India this may imply an increase in consumer welfare as airport concentration increases while in China this could mean that consumers would not be able to explore their welfare benefits to the full potential since concentration is positively associated with airfares. We also find that the absolute value of the price elasticity of the Indian market is much larger than that in the Chinese market, probably due to the high LCC penetration rates in India.

Low-cost carrier entry at small European airports: Low-cost carrier effects on network connectivity and self-transfer potential

Airport connectivity can improve the competitiveness of regions by attracting tourism and inward investment. Regions traditionally accessed international destinations via connecting flights to national gateway airports usually operated by full service network carriers (FSNC). However, the entry of low-cost carriers (LCC) in these markets has led to changes in incumbent FSNC service provision. We analyse how intra-European connectivity has changed at small airports between 2002 and 2012 and how LCC entry has affected the quality of day-return schedules in these markets. Results show that offline LCC connectivity is greater than that scheduled by FSNCs. Furthermore, LCC entry had a negative effect on the quality of the connectivity offered by FSNCs. Interestingly, we also found that day-return itineraries become more difficult for passengers in markets where the LCC is the sole operator. Regional policy-makers may need to more carefully consider the connectivity implications in the design of LCC start-up incentive schemes.

The Entry of Low-Cost Airlines: Price Competition in the European Airline Market

This paper investigates the response of full service carriers (FSCs) to the entry of low-cost carriers (LCCs). We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our statistical modelling results confirm the conclusions of the theoretical model. Competition among FSCs appears to affect the price levels of business and leisure segments asymmetrically. In contrast, competition with LCCs reduces the fares of FSCs in all classes proportionally.

Dynamic pricing and market segmentation responses to low-cost carrier entry

This paper develops an empirical model of online airfares to inspect the impact of the entry of a low-cost carrier (LCC). We utilize a database collected from the website of an online travel agent in Brazil. We test whether incumbents reshape their airfare temporal profiles in an attempt to attract the price-sensitive passengers who constitute the target market of the newcomer. Our results suggest that LCC entry partially spoils the existing market segmentation schemes of incumbents, forcing them to revise their distribution management strategy, simplify their fare structure and migrate from a non-monotonic to a weakly monotonic price curve.

Network carriers' strategic decisions: does low cost carrier entry matter?

Good decisions require that each decision-maker accurately predicts the strategic moves of the other parties. Dealing with prospective low-cost carrier (LCC) entrants is critical for global network airlines. This research focused on two main issues. First, it investigates competitive reaction by established US airlines when they face an LCC entrant in the less congested, small-sized US regional airports. Second, it examines which of the market indicators are most likely to influence airline fares out of small regional airports with the LCC entry. While the first stage of research demonstrated mixed results and did not discover any patterns in airline behaviour with LCC entry due to a large number of other variables influencing airline revenue management. The second stage confirmed that the stage length, number of passengers, number of competitors, number of stops and the oil price do have an impact on airfares.

Network carriers' strategic decisions: does low cost carrier entry matter?

Good decisions require that each decision-maker accurately predicts the strategic moves of the other parties. Dealing with prospective low-cost carrier (LCC) entrants is critical for global network airlines. This research focused on two main issues. First, it investigates competitive reaction by established US airlines when they face an LCC entrant in the less congested, small-sized US regional airports. Second, it examines which of the market indicators are most likely to influence airline fares out of small regional airports with the LCC entry. While the first stage of research demonstrated mixed results and did not discover any patterns in airline behaviour with LCC entry due to a large number of other variables influencing airline revenue management. The second stage confirmed that the stage length, number of passengers, number of competitors, number of stops and the oil price do have an impact on airfares.

Dynamic Pricing and Market Segmentation Responses to Low-Cost Carrier Entry: The Econometrics of Airline Distribution Management under Increased Competition

This paper develops an empirical model of online airfare determinants to inspect the impact of the entry of a low-cost carrier (LCC). In particular, we investigate whether the increased competition from a recently established LCC induces major carriers to respond in two competitive dimensions: pricing and distribution. We utilize an original database of airfares collected from the website of an online travel agent (OTA) comprising the domestic airport-pairs of the most populous metropolitan area in Brazil. We test whether incumbents reshape their airfare temporal profiles in an attempt to attract the price-sensitive passengers who constitute the target market of the newcomer. We find evidence that incumbents increase their airfare availability on the OTA by 11% and reduce fares by between 15% and 23% for advance purchases made approximately two months prior to departure. Our results suggest that LCC entry partially spoils the existing market segmentation schemes of incumbents, forcing them to revise their distribution management strategy, simplify their fare structure and migrate from a non-monotonic to a weakly monotonic price curve.

Passenger choice attributes in choosing a secondary airport: A study of passenger attributes in using Lanseria International Airport

Background: The economic deregulation of the airline industry in South Africa in 1991 was a landmark event and brought about various changes in the air transport market, both locally and internationally. One important after-effect of deregulation was the entry of low-cost carriers (LCCs) in 2001, which increased competition in the market and offered passengers the freedom to choose between full-cost carriers and LCCs. It is generally accepted that LCCs have been very successful across the globe, and the main reason for this lies in their simplified lower cost business models. One way of achieving lower costs is for LCCs to operate from secondary or alternative airports. This trend is observed in most regions of the world. In South Africa, and more specifically the Gauteng province, Lanseria International Airport is considered as an alternative airport to OR Tambo International Airport (the main international airport of South Africa and located about 30 km east of the Johannesburg Central Business District [CBD]). Currently, two LCCs operate from this airport with a third LCC airline indicating that it will shortly begin operations from this airport.Objectives: The research presented here reflects on the aspects passengers consider when selecting a secondary airport for their travel needs. It also compares the research findings of passenger attributes when choosing Lanseria Airport as a secondary airport in 2010 to a similar study in 2013 after another LCC commenced operations from the airport.Method: In this exploratory research a face-to-face survey was used as the quantitative data collection method in order to identify the factors that influenced passengers’ airport choice decisions at Lanseria International Airport.Results: From this research it emerged that when airports in a metropolitan area are close to one another, one of the main considerations for passengers is access time when selecting an airport. Even after a second LCC started operating from Lanseria International Airport, the attributes passengers regard as important in their decision to fly from the airport remained unchanged.Conclusion: The aim of the research is to gain a deeper understanding of the factors involved in secondary airport selection and, building on this knowledge, to assist airport owners and managers in positioning their airports in a multi-airport competitive environment. Similarly, the findings of the research could assist airlines in their decision-making process to operate from secondary airports

Airline delays, congestion internalization and non-price spillover effects of low cost carrier entry

This paper develops an econometric model of flight delays to investigate the influence of competition and dominance on the incentives of carriers to maintain on-time performance. We consider both the route and the airport levels to inspect the local and global effects of competition, with a unifying framework to test the hypotheses of 1. airport congestion internalization and 2. the market competition-quality relationship in a single econometric model. In particular, we examine the impacts of the entry of low cost carriers (LCC) on the flight delays of incumbent full service carriers in the Brazilian airline industry. The main results indicate a highly significant effect of airport congestion self-internalization in parallel with route-level quality competition. Additionally, the potential competition caused by LCC presence provokes a global effect that suggests the existence of non-price spillovers of the LCC entry to non-entered routes.