Presence Of Low-cost Carriers Research Articles

Does COVID-19 decrease price dispersion? Recent evidence from the airline industry

COVID-19 has caused substantial disruptions to the airline industry. This paper analyzes the impact of the pandemic on price dispersion in airfares. The sample includes ticket information from the DB1B database between 2018Q1 and 2021Q4. The fixed-effect panel instrument variable (IV) estimation finds evidence of decreased price dispersion during COVID-19. These results are robust to alternative measures of dispersion and subsamples. Furthermore, the subsample analyes reveal that, as the infection rate rises, the dispersion decreases more in markets where competition is more intense. Specifically, dispersion is lower on routes with the presence of low-cost carriers (LCCs) than those exclusively served by legacy carriers and on short-haul routes (≤500 miles) than long-haul routes (>500 miles). My analysis adds to the literature by exploiting the impact of changes in market conditions (i.e., demand shocks triggered by the COVID-19 recession) on price and price dispersion using the latest data.

Low cost carriers in the Middle East and North Africa (MENA) region: Emergence and barriers to development

This paper investigates the development of low cost carriers (LCCs) in the Middle East and North Africa (MENA) region from a broader perspective. We use passenger volume data at the airline and flight segment levels to illustrate the development of LCCs in the region; we conduct a structured comparison of the actual business model characteristics of the MENA-based LCCs to assess their adherence to the archetypical LCC business model; and we compile the key barriers to LCC growth in MENA from the literature.We find that the overall market share of LCCs in MENA is still below the world average – despite high growth in recent years. The presence of LCCs varies considerably between MENA countries and route groups. The more upscale, “Jetblue”-style business model, where passengers benefit from additional, complementary services or product characteristics, prevails. Political tensions, adverse regulations and lower levels of liberalization compared to Europe or North America negatively affect LCC development in many MENA countries. While low middle-class proportions appear to be a challenge for low cost business models, Asian diaspora and tourism – from beach holidays to pilgrimage – seem to induce additional demand.

Characteristics and the Overview of Air Traffic in the Republic of Croatia

As one of the largest and most important industries in the world, the air industry’s impact on economic development, living standard and productivity in the Republic of Croatia has been significant. Air transport is of high significance for the economic development of the Republic of Croatia because its tremendous importance in the development of one of the most important economic branches in Croatia – tourism. Due to the liberalization of the air transportation market in the European Union the growth of low-cost carriers has been noteworthy. The aforementioned liberalization has had a significant impact on the Croatian air transportation market, especially on the presence of low-cost carriers in the coastal Croatian airports. Based on the secondary data analysis, the purpose of this paper is to underline the characteristics of the Croatian air transportation market, and as well to analyse the importance and the role of low-cost carriers in the traffic of all Croatian airports. Due to this development, a significant increase has been noted in the passenger air traffic and as well in the number of low-cost carriers that are offering their services on the Croatian market.

Joint impact of airline market structure and airport ownership on airport market power and profit margin

This paper investigates the joint impacts of downstream airline market structure, airport ownership structure, concession services, and low-cost carrier (LCC) presence on airport market power and profit margin. Lerner indexes for a sample of 61 major airports around the world were calculated for the period 2008–2014. Then, regression analysis was conducted to identify the determinants of the airport Lerner index. We find that a more concentrated downstream airline market would reduce the profit margin for a public airport but increase the profit margin for a private airport. A higher share of concession service is found to decrease the airport's overall profit margin (accounting for both aeronautical and concession services). Airports with significant LCC presence have a lower profit margin. Finally, the concentration in airline market is found to have a larger negative impact on airport aeronautical price than on the concession price.

Determinants of air travel demand: The role of low-cost carriers, ethnic links and aviation-dependent employment

This paper presents a comprehensive gravity model in which the most important determinants for air travel demand have been identified using a two-stage least squares technique. Besides including the standard demand factors like GDP, population and tourism, the effects of other determinants such as domestic traffic, low-cost carrier (LCC) activity and public service obligations are also estimated. The profound contribution of the paper lies in the inclusion of two innovative variables in the estimations: ethnic links and aviation-dependent employment. The econometric results show that both ethnic links between countries and the share of aviation-dependent employment increase passenger demand. Moreover, the results confirm that LCC presence leads to a significant increase in passenger demand, particularly on routes where Europe’s largest LCCs, Ryanair and easyJet, are active.

Measuring and Explaining Airport Efficiency and Sustainability: Evidence from Italy

From an environmental point of view, it is widely recognized in economic literature that an efficient management of regional airports produces positive effects both for congestion reduction in the larger airports and for better use of existing infrastructures. Regional airports generally suffer from economic vulnerabilities because of scarcity of traffic volume; besides, their small catchment areas often determine low cash flow levels. As a result, significant problems of economic sustainability arise. In this context, airport infrastructure providers have the incentive to hide failures in their strategic decisions, justifying the low share of cost recovery through market characteristics. By means of the DEA (Data Envelopment Analysis) method this paper analyses overall technical, pure technical, and scale efficiency of 34 Italian airports in the period 2006–2016 in order to investigate how a number of factors impact on the efficiency and economic sustainability of regional airports. Our findings reveal that airport size, presence of low-cost carriers and cargo traffic have a significant influence on the technical and scale efficiency of Italian airports. In other words, air transport privatization and deregulation can positively affect regional airport efficiency and sustainability. This is to say that the market mechanism is a useful tool in achieving regional airport sustainability even if the empirical analysis of the effects of privatization and deregulation is recommended for evaluating such political programs.

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.

Connectivity at Chinese airports: The evolution and drivers

This study calculates the connectivity of 69 Chinese airports and identifies the underlying drivers of the variation in airport connectivity over a period 2005–2016. Our connectivity model incorporates multiple discount factors including capacity and velocity penalties to correct for the quality of a connection. We find that Chinese airports experienced a great increase in air connectivity over the study period. Beijing Capital, Shanghai Pudong and Guangzhou Baiyun are far ahead of other airports in terms of overall connectivity and especially so in terms of international connectivity. However, the growth of some tourism cities and small cities has been stagnant and they suffered losses of connectivity at times. Airport competition measured by HHI, average fare, investment in local city’s fixed asset investment and airport facilities, macroeconomic conditions, and population are found to be closely associated with an airport’s connectivity. We also find that the presence of low-cost carriers is conducive for air connectivity, while HSR has the effect of decreasing airport connectivity.

The effects of the low cost carriers' presence on airport performance: evidence from Croatia

Purpose – Although Low Cost Carriers (LCCs) expansion coincided with the growth of tourism demand in Croatia (and worldwide), their arrival on Croatian airports has happened just recently. As data related to their impact on airport business performance is scarce, the following research is done for the purpose of filling up a small portion of this knowledge gap. Design – Besides the theoretical framework on the issue of the LCCs impacts on airports business performance, the paper also gives empirical insights into the matter on the Croatian international airports. Methodology – Information were collected by using both available secondary data as well as the results of a semi structured questionnaire filled in by the officials from the Croatian international airports, in the period from January to May 2014. Findings – The empirical research has showed that respondents had positive opinion on the LCCs presence and their overall impact on the airports business performance. Related to the findings some strategic directions for the policy makers have been given. Originality – This article is one of the very few dealing with the LCCs presence on Croatian airline market and definitely the only one discussing LCCs impacts on Croatian airport performance from the airports’ managers point of view.

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.

The effect of de-hubbing on airfares

This paper studies the price effect of de-hubbing, which occurs when an airline ceases hub operations at an airport. We develop a simple theoretical model to study the impact of de-hubbing on prices and quantities of direct flights at the hub airport. Using an event study of seven cases of de-hubbing between 1993 and 2009, we analyze how average airfares change following de-hubbing. Consistent with the theoretical implications, the empirical results suggest that airfares decrease when there is a low-cost carrier presence at the de-hubbed airport, whereas airfares increase when the de-hubbed airport is not serviced by a low-cost carrier.

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.

The impact of low-cost carriers on airport choice in the US: A case study of the Washington–Baltimore region

Abstract Previous research has shown that low-cost carriers (LCCs) may stimulate traffic at an airport by offering low fares. Using passenger survey data from the Washington–Baltimore region’s three airports, we find that the benefits of LCCs to airports extend beyond the traffic generated directly by the LCCs through their low fares. In addition, we find that the mere presence of an LCC at an airport can attract passengers, even to competing carriers. These “halo effects” from LCC presence increase the significance to airport managers of attracting LCCs in order to generate passenger demand.

Low-cost carrier competition and airline service quality in Europe

The authors are investigating whether a higher presence and more efficient operations of low-cost carriers (LCCs) can increase the service quality in terms of on-time performance of all the flights landing at an airport. We sample 100 European airports located in 76 metropolitan areas of diverse sizes in 19 countries on both a daily and flight-by-flight basis during the period from April 2011 to December 2012. We construct a panel dataset at the flight code level comprising about 3.5 million observations. We find that LCCs contribute to a reduction of delays for airlines and flights landing at the observed airport. From the customers’ point of view and taking into consideration the level of service, we conclude that the presence of LCCs represents a positive externality for an airport. Airport management may therefore consider the proactive increase of LCCs market share in their long-term business strategies.

Comparison of FSC and LCC and Their Market Share in Aviation

Air passengers are experiencing increase of competition among low-cost carriers (LCC) and traditional full service carriers (FSC). The presence of LCC is significant today and everything indicates that its influence will grow even more in future as in holiday sector also in the business one as well. The article compares business model of FSC and LCC, tracks differences also in pricing strategies and examines market share of this two models in aviation markets.

Small is beautiful? The impact of economic crisis, low cost carriers, and size on efficiency in Spanish airports (2009–2011)

This paper carries out a comparative technical efficiency analysis of 35 Spanish airports using panel data for 2009–2011 with a data envelopment analysis (DEA) methodology. The results suggest that airport size has a positive impact on the technical and scale efficiency and that the presence of low cost carriers has positively affected the scale efficiency of the airports where they operate. The results also show that during the present economic crisis Spanish airports have experienced a dramatic productivity regress which is due to the reduction of their technological change component.

Low-cost carriers and Canadian traffic generation at US border airports

An investigation is conducted of the contribution of low-cost carriers (LCCs) to traffic diversion from Canadian airports to nearby US airports. An estimated five million Canadian passengers divert to US airports each year. We find that LCCs contribute significantly to the diversion of traffic to US airports. Routes to/from US border airports have a 27 percentage points higher traffic account when an LCC operates on the route, compared to equivalent routes without an LCC presence. Canadian policymakers need to seek ways to attract LCCs to transborder routes to stem this costly traffic diversion.

Segmented Competition in Airlines: The Changing Roles of Low-Cost and Legacy Carriers in Fare Determination

The rapid growth of low-cost carriers has transformed the U.S. airline industry over the past decade. Low-cost carriers (LCCs) now are much larger overall, sometimes even dominating individual routes, and have moved into more direct competition with legacy carriers. This paper re-examines fare determination, using standard data sources but modifying existing models to allow for this new structure. It finds that LCC presence has a larger fare impact than do legacies, but that their fare-reducing effect diminishes past some total share point and dominance of the low-cost segment or on a route results in diminished fare reduction relative to a more fragmented market. Other issues include the effects of individual carriers on overall fares, and their effects on LCC vs. legacy prices. This paper also establishes the importance of potential competition and the imperfect substitutability of connect service and adjacent-airport service. All of these results cast new light on airfare determination in the modern industry.

The Effect of De-Hubbing on Airfares

This paper studies the price effect of de-hubbing, which occurs when an airline ceases hub operations at an airport. We develop a simple theoretical model to study the impact of de-hubbing on prices and quantities of direct flights at the hub airport. Using an event study of seven cases of de-hubbing between 1993 and 2009, we analyze how average airfares change following de-hubbing. Consistent with the theoretical implications, the empirical results suggest that airfares decrease when there is a low-cost carrier presence at the de-hubbed airport, whereas airfares increase when the de-hubbed airport is not serviced by a low-cost carrier.

A Guide to Booking Airline Tickets Online

In this study, we document and analyze price-offer curves (the dynamics of offered prices as the departure date approaches) for 105 specific round trip itineraries on 50 busy US routes. The data were collected from the three leading on-line travel agents’ web-sites. We exploit across-route variation in the level of competition and presence of low-cost carriers (LCC), in particular Southwest Airlines (a carrier that does not sell its tickets through on-line travel agents). Both fares and yields are consistently higher along the entire price-offer curve on less competitive markets, and on routes without LCC presence. Price changes are smoother on competitive routes than on markets with one or two competitors. Price drops are observed across a spectrum of the markets, and at any day prior to departure. In particular, at least one price drop was observed within ten days before the flight for about half of all the round trips we tracked. In about one-third of round trip itineraries, we observed price drops in the last week prior to departure. At the same time, the shape of the average price-offer curve is as expected – flat up to about three weeks before the flight, and rising rapidly afterwards. We do not document systematic differences across on-line travel agents; however, differences in price quotes are not infrequent. Simple cost-benefit analysis shows that when booking a ticket closer to the planned departure date; a traveler should comparison-shop.