Entry Of Low-cost Carriers Research Articles

Incumbent responses to low-cost airline entry and exit: A spatial autoregressive panel data analysis

While the US airline industry has been substantially transformed in recent years by the growth of low-cost airlines, the cost-saving benefits of lower airfares are difficult to gauge empirically. There are two important ways in which this paper contributes to the existing literature on the impact of the low-cost carriers (LCCs). First, the availability of route-level panel data allows us to examine the role of the LCCs in the long-run adjustment of airfares as well as the responses of the incumbent carriers to LCC entry and exit in a dynamic setting. Second, we capitalize on recent developments in spatial econometrics and explicitly model the spatial dependence among adjacent airline routes, an issue often ignored by previous studies. Although most of the pro-competitive effects of LCC entry take place after entry, we find evidence that the incumbent carriers also cut airfares in anticipation of entry by the LCCs. Moreover fares remain lower even after Southwest Airlines exits. Our empirical analysis confirms the spatial dependence among airfares in adjacent routes, provides estimates of the consumer benefits from lower airfares in routes affected by LCCs, and shows that there are substantial indirect benefits, i.e. lower fares in spatially-linked, nearby routes.

Low-cost carriers in Asia: Deregulation, regional liberalization and secondary airports

While the demand for low-cost air transportation is potentially huge in Asia, development of low-cost carriers (LCCs) lags behind the region's overall aviation development, and certainly lags behind the LCC development in North America and Europe. It has been noted that market conditions and the regulatory environment of Asia are different from those of North America and Europe. What are the main differences here; and how do these differences impact market entry and success of Asian LCCs? This paper describes salient features of Asian LCCs and their developments. It examines the impact of Asia's domestic and international airline regulations and airport infrastructure on the performance of its LCCs. We find that the “Southwest effect” may also exist in Asia and that the development of low-cost terminals may compensate, at least partly, the scarcity of secondary airports in the region. The experiences of Thailand and China are investigated as case studies.

Stimulation or Saturation?

The European low-cost carriers have enjoyed dramatic growth in recent years and have substantially altered the network of short-haul air services provided. Demand for low-cost services has proved more volatile than in the United States, however, and there are incipient signs that the carriers’ ability to stimulate traffic is diminishing. Many new entrants have jumped on the bandwagon, and the traditional airlines have started to fight back. An analysis of different routes from London shows that the low-cost carriers have been much more successful in some markets than others. The major airlines remain dominant in sectors involving their principal hub airports whereas thin routes within northern Europe have shown little growth from low-cost carrier entry, some remaining the preserve of regional carriers. The low-cost airlines have performed best on dense routes not involving major airports and leisure routes between northern and southern Europe. Competitive strategies that are examined include the ability of low-cost airlines to attract traffic to secondary and regional airports that were previously underutilized. It is shown that on some routes from major cities, secondary airports are now handling a majority of the local passengers. However, the ability of airports to grow beyond the traffic potential of their own local catchment area diminishes as more locations gain low-cost service. Although some untapped opportunities may remain in countries such as France and for services with smaller aircraft, new routes are tending to dilute existing demand. The focus is therefore likely to turn to more head-to-head competition in the denser markets.

The Impact of Low-Cost Carriers Entry and Passengers Attributes in Thailand

The Impact of Low-Cost Carriers Entry and Passengers Attributes in Thailand

Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry

This paper analyzes the responses of incumbent hub-and-spoke carriers to low cost carrier (LCC) entry on routes served to and from their hubs over the past decade. Our analysis flnds that the typical price and capacity response by incumbent hub-and-spoke carriers to LCC entry has been fairly accommodating. Moreover, our analysis also flnds{somewhat surprisingly{that the likelihood of an LCC’s entry into a hub market being successful is unrelated to the relative response of the incumbent.

Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future

This paper documents the growth of low cost carriers (LCCs) in the U.S. airline industry since 1990. By estimating simple probit models, we quantify the market characteristics which have influenced nonstop LCC entry in 351 city-pair markets over the past decade. We confirm that pre-entry market density is the single most important factor influencing LCC entry into a city-pair market. For each of the large-hub-and-spoke carriers, we quantify their past, present and future exposure to LCCs. In particular, we predict which markets currently not served by LCCs are the most likely to be entered in the future. Finally, we predict the proportion of network carrier revenue that may ultimately be exposed to nonstop LCC competition.

Competitive responses to low cost carrier entry

Abstract Recent research has found that the entrance of a low cost carrier leads to lower prices on routes it has entered. This paper extends this analysis by examining the impact of route entry by a discount carrier, ValuJet into an established carrier’s hub, Delta, and by examining price changes on routes not entered by the low cost carrier. We found that Delta lowered its fares on competitive routes terminating in Atlanta and on routes flowing through its Atlanta hub in response to competition by ValuJet. We did not find evidence that Delta increased fares on non-competitive routes (either those terminating in Atlanta or flowing through Atlanta) to compensate for lost revenues on the competitive routes. This final result runs counter to the conjectures of the DOT and supports the argument that firms practice rational economic pricing in their hub-and-spoke networks. ©

U. S. Airline Deregulation: Its Effects on Passengers, Capital, and Labor

HIS paper presents an analysis of the effects of airline deregulation on passengers-business and personal, first class and coach-and explores how capital and labor have fared in a free market. The evidence corroborates many benefits that proponents of deregulation predicted, but it has not worked perfectly. Prices are not fully competitive, and for certain dimensions service quality is down. Furthermore, the contestability hypothesis as applied to the airline industry does not withstand statistical examination.