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Competition in the European aviation market: the entry of low-cost airlines
Abstract
This paper investigates the price-setting behavior of full-service airlines in the European passenger aviation market. 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 empirical findings substantially confirm the propositions of the theoretical model. We find that competition among full-service carriers appears to affect the price levels of the business and the leisure segments asymmetrically: there are small reductions in the leisure segments and significant reductions in the business segment of the aviation market. In contrast, competition with low-cost carriers reduces both the business and leisure fares of full-service carriers quite uniformly, with an emphasis on the mid-segment fares.
... Other studies analyze the drivers of competition and the impact of policy decisions like deregulation or taxation (see, for example, Ustaömer et al., 2015;Wang et al., 2016;Ivaldi & Toru-Delibaşı, 2018;Oliveira & Oliveira, 2018;Bilotkach & Hüschelrath, 2019). Especially the rise and expansion of LCC and highspeed rail (HSR) have received much attention in this context (see Alderighi et al., 2012;Detzen et al., 2012;Acar & Karabulak, 2015;Bubalo & Gaggero, 2015;Su et al., 2019;Zhang et al., 2019;Cai et al., 2021). ...
... The level of competition is calculated as the Herfindahl-Hirschman Index (HHI). The HHI is a common measure to access market concentration in the airline industry (Alderighi et al., 2012;Lieshout et al., 2016;Oliveira & Oliveira, 2018). The HHI value for any given market is calculated by summing up the squared market shares of the competitors in that market, it ranges between 0 and 1 (or 10,000 when market shares are expressed as percentage points). ...
Despite the constant growth in air passengers in Europe until 2019, many airlines had to file for insolvency and left the market. This often raised concerns by competition authorities regarding market concentration by the remaining air service providers. But at the same time, these remaining market participants still complain about protectionism and non-consolidated market structures. Against this backdrop, the aim of this paper is to assess the level of competition in airline service provision in Europe by measuring market concentration for city pairs within and to/from Europe. Market concentration on a city pair is measured using the Herfindahl-Hirschman Index (HHI) based on quality-weighted nonstop and connecting flights, and results for individual city pairs are aggregated based on their weight according to a gravity model. This allows to measure the level of competition on a city, country, or region level or any combination thereof. Results show that despite a reduction in the number of airlines operating in Europe, overall market concentration has been reduced but still is higher than concentration levels in the US market or the worldwide average.
... The LCC subsidiary of the FSNC generally offers lower average fares than the mainline brand. Alderighi et al. (2012) Pricing behavior of FSNCs depending on various types of competition. ...
... What is the effect of a long-haul LCC presence on the incumbents' fares for the service classes in which the former does compete? Alderighi et al. (2004) and Alderighi et al. (2012) report that the LCC effect on incumbents' prices is consistent and negative across multiple economy and business fare classes for both short-and medium-haul routes-even when there is no business class product on the respective LCC flights. ...
Low-cost carriers (LCCs) of the long-haul type have gained momentum in the years pre-COVID19, and on North Atlantic routes in particular. Yet their market impact on fare levels has never been evaluated, and findings related to short-and medium-haul LCCs cannot be readily applied to the long-haul case. We assess the effect, on market fare levels, of a long-haul LCC presence by proposing a stylized analytical model for hypotheses development. Then, while running two-stage least-squares regressions with instrumental variables, we distinguish between fares for economy and business classes, based on an extensive multi-year sample of North Atlantic routes. We estimate that, ceteris paribus, the presence of an LCC is associated with a 11% to 18% reduction in long-haul fares for economy class and 2% to 6% for business class. These findings continue to be relevant post-COVID19, as point-to-point-focused LCCs pose an alternative to sub-scale hub networks, especially with more leisure-/touristic-focused demand scenarios.
... The emergence of the low-cost airlines -particularly in Europe -has changed the make-up of the sector, especially for the traditional companies. In fact, previous authors, such as Lawton (2002), Francis et al. (2006) and Graham and Shaw (2008), have considered the emergence of the LCCs to be the principal repercussion of the deregulation of the European air transport market, and others, such as Alderighi et al. (2012), have pointed out that the low-cost revolution has transformed the airline industry's environment. According to Moreno Izquierdo (2013), the role played by the low-cost companies in Europe has shifted the interest of researchers from the United States to Europe (Figure 2). ...
... These types of websites have been used by other authors, such as McAfee and te Velde (2006), Law et al. (2011), Puller andTaylor (2012) and Domínguez-Menchero et al. (2014), to obtain their respective samples, as they provide fast and reliable information. Other authors, for instance Pels and Rietveld (2004), Piga and Bachi (2007), Malighetti et al. (2009) and Alderighi et al. (2012), use the airlines' own websites, although this method is only recommended when only one airline is being analysed. The reasons for selecting the routes forming the sample include: ...
This paper addresses the relationship between the development of the airline industry and tourism. On the one hand, air transport has triggered the growth of tourism throughout the world, while, on the other hand, tourism has acted as a complementary product for developing new flight routes. This process has intensified with the emergence of low-cost carriers. A profound change has been observed in companies' strategy to adapt to the demands of this type of market. To conduct this study, a review of the existing literature related to tourism and low-cost carriers was carried out. To conclude, an analysis of the positioning and price-fixing strategies of low-cost airlines operating on some of the most important tourist routes in Europe was performed. The results indicate different level of fares among the five companies in the sample, especially between Ryanair and easyJet, but similar pricing behaviour on the routes studied.
... The competition between LCCs and FSCs has been focused exclusively on short to medium-haul markets for a long time (Franke, 2004;Dobruszkes, 2006;Alderighi et al, 2012). The launch of the new aircraft generation entwined with further liberalization of intercontinental air transport market are among the major reasons explaining recent attempts of many LCCs to expand their service into long-haul markets. ...
... Besides the U.S. market, the effects of LCCs on market competition have been investigated through price equation for different countries across other regions. Alderighi et al. (2004) and Alderighi et al. (2012) empirically tested the FSCs' pricing response to LCCs' entry on city-pair market from Italy to Germany, the UK and the Netherlands. They found that a LCC reduces the fares of FSCs across all classes, but with emphasis on mid-segment fares. ...
The concept of long-haul low-cost operations has become somewhat appealing in the airline industry in recent years. In Europe, the rapid expansion of low-cost carrier Norwegian that entered the long-haul markets from several large metropolises (London, Paris, Barcelona, etc.) imposed a burden of challenges to full-service carriers (FSCs). However, Norwegian operates a large portion of its long-haul service from London Gatwick by offering flights mainly on high-density routes. Although Norwegian's capacity and market shares on these routes are still at a low level mainly due to the carrier's “puppy-dog” strategy, it seems that its effect on British Airways, the dominant carrier on these markets, cannot be ignored. The purpose of the research is to examine the extent to which the presence of Norwegian affects the prices charged by British Airways on three selected high-density transatlantic routes performed from London area. The model applies simultaneous equation systems to determine how the emergence of Norwegian affects the price and the passenger volume of British Airways, as a traditionally dominant carrier, at the city-pair markets. The findings are consistent with the well-established view held in the literature, that a LCC's presence at a specific market would generally affect the incumbents to reduce their prices. Indeed, British Airways announced the capacity expansion as a counter-strategy to mitigate the competitive pressure induced by Norwegian and its affordable service.
... De grootste winnaar van de liberalisering is alleszins de consument: lagere ticketprijzen, meer keuze in bestemmingen en luchtvaartmaatschappijen. Het lowcostmodel is dus gebaseerd op groei, volume en snelle gestandaardiseerde operaties (Doganis, 2006 (Pender & Baum, 2000;Alderighi, et al. 2012). ...
... Low cost carriers hanteren een vereenvoudigde prijsstructuur op basis van one-way tarieven (Alderighi, et al. 2012 (Pender & Baum, 2000). Een ander typisch kenmerk is de hoge zeteldichtheid ('seat density'). ...
Het hoofddoel van deze studie was na te gaan welke economische impacts low cost carriers creëren op regionaal niveau. Hiervoor wordt er nagegaan wat de directe en indirecte effecten zijn o.b.v. de tewerkstelling. De indirecte impacts werden berekend met multiplicators. Er werd ook gekeken naar de toeristische impact. De economische impacts werden geanalyseerd aan de hand van case studies van Brussel, Barcelona en Frankfurt.
Low cost carriers en luchthavens evolueren. Het low cost model is stilaan aan het verzadigen en er ontstaan hybride modellen. Zo zijn er al verschillende low cost carriers van het basismodel afgestapt. Ook de relatie tussen luchtvaartmaatschappijen en luchthavens is sterk geëvolueerd. Drie grote ontwikkelingen in het luchthavenlandschap zijn commercialisering, privatisering en globalisering.
Er worden vier soorten economische impacts onderscheiden: directe, indirecte, geïnduceerde en katalytische impacts. Er is een verschil op te merken tussen de economische impact van full service carriers en low cost carriers. Deze laatste hebben een impact dat 20 % lager is dan bij full service carriers. De impact van low cost carriers werd niet echt gevoeld in de belangrijkste Europese hubs, maar wel in secundaire luchthavens binnen een multi-airport systeem in grootstedelijke gebieden.
Het onderzoeksgedeelte van de cases werden enkele bevindingen gevonden. Eerst werd er een onderlinge vergelijking gedaan tussen de case. Er zijn grote verschillen op te merken in het aantal passagiers tussen secundaire en primaire luchthavens. Secundaire luchthavens hebben beduidend minder passagiers dan primaire luchthavens. Voor de vergelijking van de economische impacts van de cases werd de directe tewerkstelling per 1.000 passagiers gebruikt omdat dit een goede maatstaf is om te vergelijken. Er was een groot verschil te merken tussen de onderzochte luchthavens. Charleroi Airport heeft zeer laag aantal directe werknemers per 1.000 passagiers. Dit is zelf 5 keer lager dan Frankfurt Airport en 4 keer lager dan Reus en Hahn Airport wat allebei vergelijkbare luchthavens zijn. Een reden hiervoor zou kunnen zijn dat Charleroi Airport gebruik maakt van eigen personeel voor de handling. De Duitse luchthavens hebben een hoger aantal werknemers per 1.000 passagiers door het feit dat deze luchthavens minder efficiënt functioneren en dat ze allebei cargo vervoeren. Een derde vergelijking werd gedaan a.d.h.v. het low cost marktaandeel. Er zijn 3 luchthavens die getypeerd kunnen worden als echte low cost luchthavens, Charleroi Airport, Girona Airport en Frankfurt Hahn Airport. Ook werd de directe tewerkstelling per 1.000 passagiers gerelateerd aan low cost carriers vergeleken. Hier is het verschil tussen de luchthavens kleiner.
Er werd ook een vergelijking gemaakt tussen de cases en de theorie. Er kan een onderscheid gemaakt worden tussen enerzijds een groep luchthavens waarbij de theorie klopt en een groep luchthavens waarbij de gevonden resultaten afwijken van de theorie. De eerste groep zijn de luchthavens van Brussel, Girona en Reus. De tweede groep luchthavens zijn Charleroi Airport, Barcelona Airport, Frankfurt Airport en Hahn Airport. De uiteenlopende resultaten kunnen verklaard worden door diverse factoren zoals verschillen in de basisgegevens voor de berekeningen, verschillen in de methodologie en het niet eenvoudig is om het juiste of meest actuele cijfermateriaal te bemachtigen.
... sector [11,12]. Cooperation between airline alliance members includes complementary alliances and parallel alliances [13][14][15][16][17]. Several studies have examined the impact of complementary and parallel alliances on output, profit, ticket prices and social welfare etc. 18 -20]. ...
Members of marketing airline alliances cooperatively book seats from the operating airline and compete with each other in the market. This paper models and discusses two types of bargaining pricing processes: representative-based and agent-based cooperative bargaining. It also considers the internal negotiation mechanism within the marketing airline alliance for representative-based bargaining. Using a cooperative bargaining approach, the effects of marketing airline mergers in code-share agreements with the operating airline are analysed. The performance of two sub-strategies under representative-based bargaining is compared with the non-cooperative case. The study concludes that representative-based bargaining without internal negotiation intensifies competition, while representative-based bargaining with internal negotiation has the opposite effect. Cooperative bargaining with internal negotiation benefits both the marketing airlines and the operating airline, whereas representative-based bargaining without internal negotiation may result in a total profit loss. The choice of which bargaining strategy to adopt depends on the bargaining power and the substitutability of different market airline brands. This research provides the basis and support for the formulation of pricing strategies in airline alliances' code-sharing.
... Furthermore, the rivalry that exists in the aviation industry between companies and airline operators makes them strive to optimize their financial benefits. This situation creates a highly competitive market in which agents continuously seek new strategies and solutions to make their operations profitable (Alderighi et al., 2012;Barrett, 2000). ...
Currently, one of the main issues within the aviation industry is the reduction of CO2 emissions. The motivation for this paper is to further emphasize the importance of technological advancements in achieving sustainable development within the aviation industry, particularly with regard to reducing fuel consumption and CO2 emissions. The primary aim of this document is to analyze the feasibility and potential benefits associated with the implementation of formation flights within European airspace. To accomplish this objective, a model has been implemented that employs filters and policies to meticulously identify feasible flight pairs suitable for integration into an effective Formation Flight strategy. Through a careful analysis of the results derived from this study, this paper presents a continental air traffic strategy (Formation Fly), which could be implemented within the European airspace, as an innovative means to reduce CO2 emissions on every flight.
... Reynolds-Feighan (2001) found that Low-Cost Carriers in 1969-1999 had a lower concentration level than Full-Service Network Carriers. The market concentration is predominantly measured by the Herfindahl-Hirshman index (HHI), a widely accepted indicator (Alderighi et al., 2012;Obermeyer et al., 2013). Some Full-Service Network Carriers had relatively low levels of concentration and very low or no connection rates among passengers at the airports served. ...
... The liberalization of the air transport market and the entry of low cost airlines into the market have had a significant impact on the market structure. (Alderighi et al., 2004(Alderighi et al., , 2012Babić et al., 2014;Evangelho et al., 2005). However, the situation is different regarding the degree of competition in the deregulated airline industry. ...
The purpose of the study is to analyse the market structure in airline markets. The research examined at market structures in the aviation sector for the years 2011 to 2020 in both developing and developed economies.. We analysed market concentration and market structure of many countries for the period 2011-2020. Additionally, we examined the deterioration caused by the Covid-19 pandemic in the airline market structure. In the study, we used different analyses such as CR4, CR8 and Herfindahl-Hirschman index. The study's conclusions show that the spread of Covid-19 has had a significant impact on airline firms, and market structures have started to shift in several nations.. The level of competition and the market structure differed among countries. Due to the Covid-19, while some countries experienced more intense markets, other countries experienced markets that are more competitive.
... b) Load Factor will be increased (short-term advantage to FSCs, that have more significant improvement in this area) in the long term, dependent on the business model - [72]). c) No possibility of price discrimination/marketing/"deluxe" features (FSCs at a disadvantage - [4]). d) Bigger fleets and networked structures are possibly at an advantage due to the possibility of price and traffic optimization over the whole route (beneficial to FSCs, especially members of alliances - [2]). ...
Curbing CO2 emissions to combat climate change may be a defining challenge for the generation ahead. Due to their ecological footprint, rich countries have particular responsibilities in this area. We present an innovative idea to deploy the evolving concept of the Physical Internet for the functioning of passenger air transport in order to increase resource efficiency and reduce emissions from the sector. Due to the already tight integration of this sector and the development of technology, it is achievable. Furthermore, thanks to the cost-saving opportunities of implementing the concept, it may be beneficial for airlines. We calculate that the implementation of Physical Internet in the EU may reduce total emissions of passenger air transport by 9.3 Mt. (13.5%) compared to the peak consumption year of 2019.
... The success of Southwest's business model in the USA has spread worldwide, leading to the birth of airlines such as Ryanair and EasyJet in Europe, flydubai and Flyadeal in the Middle East, and Jetstar, AirAsia and Spring Airlines in the Asia-Pacific. The negative effects of the LCC model on airfares is known as the 'Southwest effect' and the 'Ryanair effect' (see, e.g., Morrison, 2001;Vowles, 2001;Alderighi et al., 2012;Zhang & Lu, 2013). Bennett and Craun (1993) estimated that if airfares on the routes where Southwest Airlines served were raised to the level of the airfares on the routes without Southwest, the industry revenue would increase by USD2.5-3 billion (holding traffic constant). ...
Air transport plays an important role in a country’s economic development. Because of post-colonial government attitudes, the civil air transport industry in Cambodia, Laos, Myanmar and Vietnam (the CLMV countries) did not develop from the 1960s onwards when compared with other countries in the Asia-Pacific region. The CLMV countries share a similar history in their political systems, the development of their aviation industries and their economic development in general. This study examines the air transport industry of the Southeast Asian region from two perspectives: (1) the relationship between air transport development, economic growth and inbound tourism in the CLMV countries; and (2) the impact of airline service quality on customer satisfaction and repurchase behaviours in Laos and Myanmar.
There is a bi-directional causality between air passenger traffic and economic growth in the long term. Inbound tourism has a significant impact on air transport demand in the long run but no significant relationship exists between the two in the short run. Air transport deregulation has a positive and significant impact on traffic volumes, particularly for Cambodia. Further reforms are still needed before such an outcome can occur in Myanmar.
The most important factor leading to airline choice for both Laos and Myanmar was brand credibility while the responses of air passengers demonstrated that product uniqueness was also of significant importance. Surprisingly, price and perceived value were not ranked as the most important influences of airline choice in these two low-income countries. Despite high service quality not necessarily generating repurchase behaviour, airlines need to understand customers’ needs to ensure that their service quality matches customers’ expectations to have a better chance of creating customer satisfaction. Because happy and satisfied customers are much more likely to re-purchase.
... En supprimant la désignation des compagnies, l'encadrement des tarifs et en permettant la libre application de l'ensemble des Libertés de l'air, notamment le droit de cabotage (8 e et 9 e Libertés) au sein de l'espace communautaire, de nouvelles possibilités opérationnelles et commerciales sont apparues. Le processus de déréglementation en Europe s'est fait sur une longue période marquée par des « paquets » de libéralisation (1987, 1990 et 1992) (Alderighi & al., 2012) et la déréglementation fut complète en 1997 (Varlet, 1997). En France, ce n'est qu'après de longues négociations avec la commission européenne, qu'un accord sur l'ouverture du secteur aérien à la concurrence a pu être signé. ...
... As a consequence, the number of enplaned/ deplaned air passengers between Europe and Morocco had significantly increased, from 6.8 mil. in 2005 to 11.06 mil. in 2012, leading to an average annual growth rate of 9.3%. According to Alderighi et al. (2012), unlike other sectors, the airline industry factors of change are not limited to socio-economic and technological factors, but depend mainly on legal, institutional and cultural changes. To this end, a dummy variable is introduced in the model to take count of the legal changes following the signing of the Open Sky Agreement between Morocco and the EU. ...
Europe is the most important source of tourism for Morocco. The purpose of this paper is to investigate the short and long-run determinants of air travel demand from European Union to Morocco. In order to analyze the air travel demand, we used the relevant macroeconomic variables, such as the origin countries' income, i.e. Europe and the real exchange rate between the origin and host country. Annual data from the two countries, covering the period 1970-2012, are used. The ADF unit root test was used to examine the degree of variables integration. The Johansen maximum likelihood procedure was used to determine the number of co-integrating vectors in the VAR model. An error correction model was estimated to explain the air travel demand determinants between Morocco and the EU both in short and long-run. The estimated error correction model provides strong evidence that European GDP, real exchange rate fluctuations and regulatory environment are the main factors affecting air travel demand in Morocco.
... Following Alderighi et al. (2012), we assume that passengers are vertically heterogeneous. That is, there are passengers who have a greater willingness to pay, known as business passengers, compared to others who give greater importance to airfares, leisure passengers. ...
This paper studies the effects of concession revenue sharing contracts to analyze how airport–airline vertical structures compete for passengers in the same catchment area. The analysis studies the effects of such contracts depending on airport ownership structure. We show that private airports tend to share less concession revenues than public ones eventually leading to lower welfare levels. These results have relevant policy implications when concession revenue sharing contracts are specified in practice.
... Dresner, Lin, and Windle (1996) analyzed 200 O&Ds and found that the presence of LCCs contributed to lower yields and increased traffic. Similar, Franke (2004), Dobruzkes (2006) and Alderighi et al. (2012) found that Low Cost Carrier (LCC) presence translates to fare decreases and demand stimulation. Morrison (2001) even argued that the entrance of Southwest lowered fares by 46.2 % in the U.S. domestic market. ...
In autumn 2017, Air Berlin, the second biggest player in the German airline market, discontinued its operations due to bankruptcy. Prior to this, the struggling carrier had already been reducing its domestic capacities and adjusting its service patterns, which had impacts on the competitive situation for the remaining carriers on various domestic origin-destination (O&D) markets. This paper aims at identifying resulting changes of, e.g., the yields generated in intra-German air transport. In the German domestic market, the relevant competition per route can be narrowed down to a few players as opposed to continental or intercontinental flights. We found evidence that on 90% of the TOP20 O&Ds, representing 96% of the total passenger volume, revenue per pax (as an indicator for yield) increased. We found FRA-BER and MUC-BER – both O&Ds with intense Easyjet competition to be the only O&Ds that did not show an increase in price/yield after the market exit of Air Berlin.
... With reference to the European market, Fageda and Perdiguero (2014) conducted DID analysis to examine the effects of the merger of Spanish FSCs and LCCs on airfare and number of passengers and found flight frequency decreased but airfare did not change after the merger between the LCCs while airfare increased but flight frequency did not change after the merger between the FSC and the LCC. Alderighi et al. (2012) focused on price setting behavior of Lufthansa, British airways, Alitalia and KLM on the intra-European route from Italy and estimated airfare function with airfare data categorized by fare type. They found the competition between FSCs caused small airfare reductions in the leisure segment but significant reductions in the business segment, while the competition between FSC and LCC caused uniform reductions in both the leisure and business segment. ...
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.
... A strategic framework in essence can be seen as on par with theoretical, conceptual or analytical frameworks. Such frameworks are commonly employed tools to scaffold and organize research, including in aviation (Alderighi, Cento, Nijkamp, & Rietveld, 2012). At its heart, a conceptual framework can be viewed "as a set of broad ideas and principles taken from relevant fields of enquiry…to assist a researcher to make meaning of subsequent findings" (Smyth, 2004, p. 1). ...
This paper looks at the development and use of a strategic level framework of analysis tailored to air transportation management studies. Generic strategic frameworks designed for industry level analysis do not always capture the core factors and forces impacting and shaping the contemporary global aviation industry. The proposed strategic framework covers three key categories; namely politics, economics and geography, resulting in the acronym PEG. Three of the most commonly employed generic strategic frameworks in management research, including air transport management, are SWOT, PEST (PESTE/PESTEL) and Porter’s five forces. However, these do not readily encourage all three of the PEG categories, with geography not explicitly featuring in any of these generic frameworks. Where an airline is based in the world matters in global aviation as the industry is underpinned by the bilateral system – a bundle of restrictions and limitations covering airline nationality/citizenship, ownership, control and home base requirements. The paper concludes by contending that PEG is an easy to remember and apply strategic framework for air transportation management studies and builds on the strengths and possibilities of generic strategic frameworks, but in a manner which helps to ensure that key industry-specific drivers and forces are brought to the fore. Figuratively speaking, the PEG strategic framework is situated at the center of the global aviation industry, rather than having to be retrofitted or modified to more closely align with the sector.
... The airlines industry is a highly competitive business, which has progressively evolved from a system of long-established state-owned carriers operating in a regulated market for the past decades into a highly dynamic, unregulated industry of today [1]. In order to keep their market competitiveness, airlines have to positively differentiate their offered services against other competitors to attract potential flying passengers. ...
The in-flight service has been acknowledged as one of the main criteria that are highly considered by flying passengers for their preference and loyalty to an airline, especially in-flight meal services. Although the quality of served foods and beverages is substantially improved over the years, the applied process of food delivery and waste collection inside the cabin has essentially remained similar as it was decades ago. This study presents the generation of alternative conceptual designs for new improved in-flight food delivery and waste collection system through systematic engineering design methodology. The design requirements analysis is conducted with the help of Quality Function Deployment method while the morphological matrix method is applied in deriving the conceptual alternative designs. All in all, five alternative design concepts of the in-flight food delivery and waste collection system have been developed in this study for future evaluation to select the best among them.
... Regarding the definition of these companies, there is not a widely accepted definition yet, however, most of them concentrate on the low-cost element, as a point of differentiation from full-service companies (Holloway, 2008). For example, according to Alderighi et al. (2012), an LCC company is defined as an aircraft carrier that differentiates in the market through the low prices of its air tickets. Of course, these companies, in addition to the low cost, hold various additional characteristics, on the basis of which they can be classified. ...
Low Cost Carriers (LCCs) are currently experiencing significant growth by developing a highly competitive business model based on low cost resulting from the use of secondary airports and standardized fleets, as well as the provision of relatively shorter routes. The most important reason for the consumers to choose these companies is the low price of the tickets, without overlooking factors such as the quality of service, the availability of itineraries to the desired destinations and the range of the network served. These factors shape the perceived quality and satisfaction of the consumers, who adopt attitudes toward LCCs that are translated into behavioral intentions and actual purchasing behaviors, as the Theory of Planned Behavior (TPB) suggests. The aim of this paper is to investigate consumer intentions in Greece towards LCCs based on the TPB, while taking into account the reasons for selecting these companies and the factors shaping consumer satisfaction. The survey involved 154 consumers in Greece who were asked to fill out a specially designed questionnaire of 37 objective questions. According to the research results, the main reason for choosing LCCs was the low cost of tickets, but the availability of airline connections to the desired destinations and the perceived quality were also important reasons.
(18) (PDF) Consumers’ Behavioral Intentions towards low-cost airlines: the case of consumers in Greece. Available from: https://www.researchgate.net/publication/344015542_Consumers'_Behavioral_Intentions_towards_low-cost_airlines_the_case_of_consumers_in_Greece#fullTextFileContent [accessed Sep 01 2020].
... Fageda and Fernandez-villadangos (2009) analyze the influence of LCCs entry on airline competition and find out that LCCs have a moderate but significant effect on prices and increase alternatives even in low-density routes. Alderighi et al. (2012) has investigated the pricing response of full service carriers (FSCs) when LCCs enter the market. In this study four European countries and four famous European carriers are studied and the results showed that competition between FSCs and LCCs reduces the price levels of business and leisure segments with a significantly stronger effect on the business fares. ...
In the airline industry, ticket pricing is one of the most complex problems that researchers and practitioners are extensively involved on it. This research analyzes the effect of airline and passenger factors on ticket pricing in a domestic market that can play substantial role in long-term ticket pricing. Different factors are collected from literature and these factors are examined by screening techniques to find the most important ones. Regression analysis as a linear technique and Levenberg–Marquardt as a nonlinear technique are applied to find the relationship that exists between the most important ones. Research findings confirm that airport dominance can make a significant effect on ticket pricing. Difference between full service carrier (FSC) and low-cost carrier (LCC) ticket price is one of the other important factors and finally presence of flag airline as a price regulator in a route can affect ticket price. Our findings are based on a real case study and can enhance pricing power for commercial airlines in domestic markets.
... We use the Herfindahl-Hirschman Index (HHI) as market concentration measure. HHI is a common measure to assess market concentration in the airline industry (e.g., Reynolds-Feighan, 1998;Alderighi et al., 2012;Lieshout et al., 2016;Oliveira and Oliveira, 2018). The squaring of the market shares makes the contribution of the bigger firms to the HHI disproportionately large, reflecting the assumption that the largest firms in a market have disproportionate market power (Belobaba and Van Acker, 1994). ...
Market concentration in the airline industry, its measurement, causes, and consequences, has been a long-standing issue with airline representatives, public authorities, interest groups, and academics alike. This paper extends research on assessing market concentration in the airline industry by incorporating high-speed rail (HSR) services and connecting flights as travel alternatives to nonstop flights. Our methodology includes a connection builder calibrated with booking data, a Quality of Service Index (QSI) model for quality-weighting of travel alternatives, and the Herfindahl-Hirschman Index (HHI). We calculate HHI for origin and destination (O&D) city pairs originating in Germany on route and city level and provide aggregate metrics for all directional O&Ds worldwide ex Germany and across different destination categories applying a gravity model for size-weighting of O&Ds. Our findings support concerns about Lufthansa Group becoming more dominant in the German air transport market after the collapse of Air Berlin.
... (ii) LCCs can enter markets with a large number of existing products and attempt to offer new product varieties, such as a ticket with a few restrictions for a low fare. However, prior studies aimed at explaining the entry determinants and strategies of LCCs mostly focused on the large markets in the US and Europe (see, e.g., Alderighi et al., 2012;Boguslaski et al., 2004;Gil-Molt� o and Piga, 2008;Ito and Lee, 2003;Müller et al., 2012;Sinclair, 1995). For example, Müller et al. (2012) used the duration analysis regression model to analyze JetBlue Airways 0 decisions regarding entry into the US non-stop airport-pair domestic markets, and they found that JetBlue focused on thicker routes and secondary airports. ...
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 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.
... The results are not, however, totally consistent. Alderighi, Cento, Nijkamp, and Rietveld (2012) concluded that competition with LCCs reduces both the business and leisure fares of full-service carriers. Barbot (2008) concluded that LCCs may successfully compete with other LCCs but fail when rivals are full-service companies. ...
The objectives of this research include studying the impact of low-cost carriers on the spending behaviour of the tourists at a given destination. To accomplish these objectives we examined the allocation of tourist expenditures to different travel-associated expenses and its determinants in the Azores islands and compared the situation before and after the airline liberalization. We considered that socio-demographic and trip-related characteristics influence spending behaviour.
We used Interval Regression Models to estimate the relationships between tourists' expenditures and their determinants. The results confirm a structural break in the value of the coefficients when considering the periods before and after the airline liberalization.
Bu çalışmada, 2012-2022 yılları arasında Türk sivil havacılık taşımacılığının rekabet ve yoğunlaşma derecesini niceliksel olarak analiz etmek için ilk defa üç farklı kategoride mutlak piyasa yoğunlaşması (CRN) ve göreli piyasa yoğunlaşması (HHI) kullanılmaktadır. Endüstrinin üretim etkinliği VZA yöntemiyle hesaplanmaktadır. Son olarak, eş bütünleşme testi kullanarak bu iki faktör arasındaki ilişki ampirik olarak test edilmektedir. Elde edilen sonuçlar dikkate alındığında. Türk sivil havacılık taşımacılığı endüstrisindeki üretim etkinliği ile piyasa yoğunlaşması arasındaki ilişkinin inceleme dönemi içerisinde uzun vadede istikrarsız olduğunu göstermektedir. Endüstrinin gelişimini ivmelendirmek ve etkinliğini istikrarlı bir yapıya dönüştürmek için uluslararası pazarlar üzerine çalışmaların derinleştirilmesinin faydalı olacağı değerlendirilmektedir.
China’s domestic aviation industry has undergone price liberalization reform via the deregulation of airfare since 2004. However, the impact of this policy has not been scientifically evaluated. This paper aims to analyze the effect of the 2017 price liberalization reform on airfares and identify the primary cause of this effect from the perspective of competition within the industry. Empirical results show that the liberalization of airfares leads to a significant increase in the average price of tickets. And the concentration of route markets plays a role in raising fares above the equilibrium level, which diminishes social welfare. Furthermore, heterogeneity analysis demonstrates that the liberalization policy has a greater impact on fares for long-haul routes, nonleisure routes and routes operated by carriers other than low-cost carriers (LCCs).
The COVID-19 outbreak has brought an unprecedented crisis in both the tourism travel and aviation sectors. Understanding how firms compete guaranteeing mobility in an uncertain situation like the current one is a fundamental question in the field of socioeconomic planning and development. Using two-stage least squares (2SLS) regression analysis, this research studies the relationship between the incidence of COVID-19 in tourism destinations and the airline pricing policy. To this end, big data and business analytics techniques were used to obtain 2,668 price observations from 13 European airports to the five main Spanish sun and beach destinations. The results suggest a high inverse relationship between the incidence of the virus in the destination region and the mobility and price of the airline ticket. Other factors like economic activity, fleet capacity, and the distance between origin and destination have also been decisive in airlines' price-setting strategies during the current pandemic.
The new high-speed rail (HSR) routes are expected to have a large impact on air transport demand. In some cases, HSR can be a complementary mode to air transport. However, a number of studies have pointed out that HSR can have a negative impact on air transport demand. Various approaches have been used to model mode choice behaviour, such as the discreet choice model, logistic regression and the analytical hierarchy process. OLS and MLE are two methods that are commonly used for parameter estimations. However, these approaches have some limitations. This study aims to understand the travel behaviour, mode choice model, travel variables and the impact of HSR operation on air transport demand through a systematic literature review. This study explores various approaches that are used to model mode choice and identify possible alternative approaches to overcome the limitations of current methods. The key variables that influence mode choice and the impact of HSR operation are elaborated in this study. Several points can be concluded from the analysis of the literature, such as: (1) the operation speed set by HSR should be reliable to enable it to compete with airplane travel time; (2) the model to represent mode choice behaviour should be derived from a suitable analysis method and Bayesian method is one of the alternatives for the parameter estimation; (3) there are various variables that are yet to be included in the current mode choice models, and they can be further explored to better present the needs of the customers; and (4) the impact of HSR operation on airplane travel demand, explained by previous studies, can be used as a reference for the policy maker in implementing transport projects.
Four LCCs (Low Cost Carriers) had entered into the Japanese domestic air market between 1998 and 2006 as a result of the deregulation of new entries. The government had preferentially assigned these four LCCs slots at Haneda airport to reduce airfares by stimulating market competition among LCCs and FSCs (Full Service Carriers), and to stabilize LCCs’ administration by giving them highly demanded routes from the primary airport in Tokyo. However, all of the four LCCs have faced difficulties in gaining stable independent administration and have been supported by the rival FSC, ANA as a stock holder. Only one LCC, Skymark, has maintained independent flight operations and pricing while the other three LCCs have operated codeshare flights with ANA and became complemental carriers of the ANA network. We estimated the yield function and found that only Skymark had induced a lower fare of its rival airlines. The codeshare flights had started to make the LCCs administration stable by the brand power of ANA. On the other hand, codesharing had significantly reduced the price competition between FSCs and LCCs. Therefore, slot allocation should be conducted with consideration of codesharing.KeywordsAirfareSlot allocationLCCCongested airportCode sharing
This paper investigates the impact of market structure and high-speed rail on China’s low-cost carrier Spring Airlines’ entry patterns during the pre-pandemic period. Dividing the air transport system into discrete distance segments (i.e., short-, medium- and long-haul) helps better reveal critical factors that affect the route entry of Spring. Given the existence of market power in China’s airline industry and the capacity constraints at major airports, Spring strives to enter routes that can accommodate more potential entrants without a strong response from incumbents and are connected with more concentrated or lower-capacity airports. The complementary and competition effects of high-speed rail are well-distinguished in different distance ranges.
Havayolu yolcu pazarında faaliyet gösteren seyahat işletmeleri, hedef pazarlarını iyi tanımak ve etkin bölümlendirmek zorundadır. Aksi takdirde işletmelerin kaynakları israf edilmiş olacak, planlamaları ve stratejileri etkiliz kalacaktır. Bu kritik noktadan hareketle kitapta, ülkemiz yurtiçi havayolu yolcu pazarında müşterilerin sektörde kullanılan kriterlere göre bölümlendirilmesi, profillerinin tanımlanması ve havayolu işletmelerini tercih etmelerinde etkili olan faktörlerin neler olduğunun öğrenilmesi amaçlanmıştır. Araştırma sonuçlarının işletmelere yol göstermesi beklenmektedir.
Low-cost airlines (LCAs) have been widely explored, but surprisingly, scholars have paid little attention to passengers’ mobility practices and the changes that have occurred since LCAs’ entry into the market. These practices were investigated through a large, in-depth survey amongst departing LCA passengers from Charleroi Airport, Belgium (N = 1471), conducted over six months to minimise seasonality issues. This study captures the profiles of LCA’s passengers and travel practices before and after the entry of LCAs, with a focus on travel frequency, length of stays, travel motives, travel party and accommodation. This study finds that these elements of mobility practices are all closely interrelated and change through time. A new relation to time and space emerges and travel frequencies and length of stays appear to be less differentiated according travel motives. Thereby, very frequent and very short trips are not specific to business trips anymore and they spread to tourism and visiting friends and relative (VFR) motives. However, VFR related trips also show very long stays which balance the general decrease in length of stays. This specific travel motive has risen significantly over the years, inducing other changes such as an increased number of trips made alone and the choice of free accommodation like VFR or own housing contrary to business and tourism motives which remain in more mainstream accommodation choices and travel party. Additionally, it is not those who used to travel a lot by plane in the past who travel a lot with LCAs today. Thus, LCAs’ passengers are either newly mobile or coming from other transport modes implying new or changed mobility practices.
Changes in air transport networks over time may be induced by competition among carriers, changes in regulations on airline industry, and socioeconomic events such as terrorist attacks and epidemic outbreaks. Such network changes may reflect corporate strategies of each carrier. In the present study, we propose a framework for analyzing evolution patterns in temporal networks in discrete time from the viewpoint of recurrence. Recurrence implies that the network structure returns to one relatively close to that in the past. We applied the proposed methods to four major carriers in the US from 1987 to 2019. We found that the carriers were different in terms of the autocorrelation, strength of periodicity, and changes in these quantities across decades. We also found that the network structure of the individual carriers abruptly changes from time to time. Such a network change reflects changes in their operation at their hub airports rather than famous socioeconomic events that look closely related to airline industry. The proposed methods are expected to be useful for revealing, for example, evolution of airline alliances and responses to natural disasters or infectious diseases, as well as characterizing evolution of social, biological, and other networks over time.
We estimate the economic effects of a reallocation of passenger traffic from congested Los Angeles International Airport (LAX) to Ontario International Airport (ONT). We find that the relative market shares of the two airports are a function of time and distance, relative fares, and absolute frequencies. Given increasing congestion and population growth patterns, there appears to be potential for expanded operations at Ontario, with resulting economic and environmental benefits. We define the potential market as those travelers choosing LAX despite being closer in travel time and distance to ONT, based on specific postal codes. Using estimates of the value of time, vehicle and aircraft operating costs, and emissions, we calculate the potential effects of shifting both for the average individual passenger and for 10 percent of the potential market from LAX to ONT. These estimated shifts would require only a relatively small percentage change in flight operations. We estimate the value of time and cost savings for both private and ride-sharing services at between 11 million annually for a 10 percent shift, depending on whether parking fee differentials are included. The parking fee differentials represent just over half the estimated savings for private vehicle travelers, and to some degree may reflect locational rents rather than resource costs to the overall economy. We also estimate potential reductions in CO2 emissions of more than 4200 tons annually for a 10 percent shift, as well as meaningful reductions in hydrocarbons, CO, and NOx.
Given the trend of railway liberalization in Europe and Asia, we explore the effects of introducing low-cost high-speed rail as an answer to the railway reform on air-rail competition. In particular, by proposing a vertically differentiated model, we first derive the optimal pricing policies as well as the corresponding profits and market shares for low-cost high-speed rail (LCR), full-service high-speed rail (FSR) and air transport (Air). We do so for two types of LCR entrants, namely the incumbent entrant (to the FSR company) and the independently operated entrants. For both situations, we prove analytically that introducing LCR leads to reduced FSR and Air fares as well as to reduced Air traffic. The fare and traffic reductions increase with the passenger's time value and with the LCR travel time, while they decrease with the Air unit seat cost. Moreover, all LCR effects are stronger for an independently operated LCR. We apply our model to the Paris-Marseille route, based on data collected from publicly available sources. It is found that introducing an independently owned (incumbent owned) LCR on this route leads to 38% (33%) less air traffic, 20% (14%) less FSR traffic and a 37% (29%) increase in total rail traffic. Furthermore, this comes with increases of 2% (8%) in combined railway profit and 6% (5%) in total social welfare. These results support the decision of French policy makers to have LCR and FSR operated by the same company, as it comes with much higher combined railway profits and almost the same welfare increase as independently owned LCR. Further sensitivity analyses suggest that most LCR passengers would otherwise have traveled by FSR or Air, although LCR also attracts new passengers. In addition, offering a low-cost alternative is more effective if passengers value time more highly. Implications in terms of methodology and industry are provided.
Air transport deregulation has lead to an increase of air traffic, together with a reduction of air fares. Air fare reduction has narrowed operational margins of airlines, bringing financial and employment instability. This has brought airlines to pay increasing attention to flying costs reduction. Two important components of flying costs airlines can try to cut modifying the planned flight are en route charges and operational costs. We rely on Demand Data Repository (DDR2) data to calculate deviations from planned flight trajectories to analyse the extent to what airlines try to cut operational costs making shorter flights than planned if possible, and cut en route charges providing a planned flight with lower en route charges than the planned flight. Our findings show that there is no generalised strategy among airlines to reduce en-route charges asking for deviations of the planned route. On the other hand, airlines are achieving savings of operational costs regularly. Higher savings per nautical mile are obtained in night flights, with longer planned distance and operated by low cost carriers.
Argentina's aviation networks underwent significant restructuring after the 2015 election of President Mauricio Macri. Historically constrained by poor aviation infrastructure, economic uncertainty, currency devaluations, labor unrest, comparatively weak passenger demand, and operational barriers to low-cost carriers (LCCs), Argentina's airline networks have experienced deep restructuring in both providers and network interactions. With less than 0.3 trips per capita in Argentina, compared to 3.0 in the mature U.S. aviation market, analysts argue that there is significant potential for moving bus and automobile travelers to airlines, and to expanding Argentina's airline connectivity profitably throughout the region. LCCs such as Flybondi, Norwegian, Air Europa, Sky, JetSmart, and others are challenging long-standing transportation relationships in the region and developing new routes for consumers. A set of interlinked questions aims to understand Argentina's changing aviation geography. Comparing O-D data from 1972, 1982, 1996, and 2019, the results indicate a significant reorganization of Argentinas domestic and regional network interactions, with modest adjustments to its global north-south connections. Challenges include outcomes of a recent change in Argentina's government and the long-term impact of the global COVID19 pandemic on the aviation system.
Changes in air transport networks over time may be induced by competition among carriers, changes in regulations on airline industry, and socioeconomic events such as terrorist attacks and epidemic outbreaks. Such network changes may reflect corporate strategies of each carrier. In the present study, we propose a framework for analyzing evolution patterns in temporal networks in discrete time from the viewpoint of recurrence. Recurrence implies that the network structure returns to one relatively close to that in the past. We applied the proposed methods to four major carriers in the US from 1987 to 2019. We found that the carriers were different in terms of speed of network evolution, strength of periodicity, and changes in these quantities across decades. We also found that the network structure of the individual carriers abruptly changes from time to time. Such a network change reflects changes in their operation at their hub airports rather than famous socioeconomic events that look closely related to airline industry. The proposed methods are expected to be useful for revealing, for example, evolution of airline alliances and responses to natural disasters or infectious diseases, as well as characterizing evolution of social, biological, and other networks over time.
The airline industry has evolved from a system of long-established state owned carriers operating in a regular market to a dynamic, deregulated industry. This development – especially the emerging competition of low-cost carriers – has had a major influence on the price setting behaviour of airlines. Profitability of airlines is limited and pricing systems are reconsidered. To stay competitive, traditional full service carriers consider the implementation of ancillary revenue systems, which are similar to low-cost carriers. This paper investigates challenges of an ancillary revenue pricing approach for full service network carriers. A qualitative means-end approach is used to find attributes, which are important for air passengers, and influence their ticket buying behaviour. In addition, the study provides insight into the perception of an ancillary revenue system in the full service network carrier market. The findings present 18 ticket purchase attributes and 15 behavioural terminal values in hierarchical value maps. Based on these values, it is evident that most passengers appreciate if some services are included in the price and not offered as ancillaries. Benefits of ancillary revenue systems include the individual ticket creation, customisation, improved price-performance ratio, flexibility gains and progressive ideas. The main drawbacks of the system include a complicated and complex booking process, feelings of uncertainty, branding problems, a distortion of competitive behaviours, a system similar to that of low-cost carriers, feelings of paying extra for every service and a perceived decline in service and quality.
This paper presents a model of second-degree price discrimination and intergroup effects. Consumer heterogeneity is assumed on both a horizontal and a vertical dimension, while various distinct market structures, some of which include low-cost carriers (LCCs), are considered. We theoretically show that the rivalry among full-service carriers (FSCs) usually reduces the distance between business and leisure fares. The rivalry with an LCC increases this distance causing a reduction of leisure fares and, possibly, an increase of business fares. We test these implications using data concerning the early stage of low-cost entry in Italy on European routes. The empirical results largely support our theoretical findings.
Until 2015, air transportation in the Autonomous Region of the Azores faced a strong situation of monopoly as only two airlines where operating on domestic routes between the mainland, Lisbon and Porto, and the archipelago. From a consumer's point of view, there were only two main differences regarding airfares, the so called “resident fare,” which was only for passengers that had their main living address on one of the nine islands and the “normal fare.” With other words, each and every passenger that lived on the Azores had access to special reduced rates. This positive point, on one side, had its negative aspect on the other side, as it affected national tourism, excluding all residents on the Portuguese mainland and/or Madeira from having access to these fares. With the liberalization of air space and the arrival of low cost airlines, such as Ryanair and EasyJet, the situation changed.
This paper proposes the term perishable-asset revenue management to denote the field that combines the areas of yield management, overbooking, and pricing for perishable assets. After summarizing the characteristics common to problems in this field, the paper discusses the objectives and constraints faced by decision makers. Then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element. Finally, it suggests some important areas of future research that can help bridge the gap between theory and application.
This study examines the impacts of liberalization policies on economic growth, traffic volume and traffic flow patterns, and investigates the mechanisms leading to those changes. Our investigation concludes that 1) liberalization has led to substantial economic and traffic growth. Such positive effects are mainly due to increased competition and efficiency gains in the airline industry, as well as positive externalities to the overall economy; 2) liberalization allows airlines to optimize their networks within and cross continental markets. As a result, traffic flow patterns will change accordingly. Strategic alliance is a second best solution and will have reduced when ownership and citizenship restrictions are relaxed; 3) there is a two-way relationship between the expansion of Low Cost Carriers (LCCs) vs. liberalization. The fast growth of LCCs leads to increased competition and stimulated traffic, calling for the removal of restrictions on capacity, frequency and pricing. In addition, development of LCCs in domestic market can promote liberalization policy by increasing the competitiveness of a national aviation industry. On the other hand, existing regulations hindered the growth of LCCs. Further liberalization is needed for the full realization of associated benefits.
This paper addresses the phenomenon of relatively high fares for flights leaving from a carrier's hub. We develop an empirical model relating fares to distance, using the main leg of intercontinental flights for scaling purposes. Our results indicate that at least some of the major European carriers place a mark up on flights originating from their hubs.
The US airline industry was deregulated in 1978 and has undergone significant changes in industry structure, profitability, employment, passenger volume, and patterns of service and fares, among other characteristics. This paper sets out to make three contributions to the literature as related to the story of airline deregulation. First, discussion of economic theory will provide the context for an updated overview of the positive, negative, and really negative results of US airline deregulation, summarized in the form of “the good”, “the bad”, and “the ugly”. Second, this paper provides a periodization of the 30-year history of US airline deregulation that is important in understanding the cycles of change as reflected in the industry’s financial performance and other relevant data. Third, this paper contributes to the renewed debate about the efficacy of deregulation and liberalization policies, particularly at a time when the global financial crisis has cast a harsh spotlight on the (un)desirability of these policies. Some of the good results during the 30 years of airline deregulation, from the industry and consumer perspective, include higher passenger volumes, more service to the most popular destinations, and lower fares on average. Bad results include financial and employment instability, diminution in the quality of airline service overall, and fewer flights and higher fares to smaller places. The recent 2000–2005 period has been particularly ugly, as the airline industry has lost over $30 billion, and several high-profile carriers, such as United, Delta, Northwest, and US Airways, were forced into bankruptcy.
The liberalisation of air transport regulations in the EU has led to the introduction of a number of new airlines serving short haul point to point routes (e.g. easyJet, Ryanair, Debonair, Virgin Express, Go and others). While some of these routes are clearly leisure oriented (e.g. Palma, Ibiza, Venice and Nice), anecdotal evidence suggests that a significant number of travellers are using these services for business related trips. A number of recent studies suggest that pressure is being brought to bear on business travellers to reduce travel expenditure (IATA, 1997. International Air Trasport Association, Press release, No. PS/13/9, 27 January 1997; Bender, A., Stephenson, F., 1998. Journal of Air Trasport Management 4 (2), 99–109; Mason, K.J., 1998. In: Selected Proceedings of the Eighth World Conference on Transport Research (forthcoming)). This paper details a stated preference (SP) survey of European business travellers to assess the propensity for business travellers to use short haul low cost airlines. The study assess the utility placed by travellers on price, airline reward schemes, flight frequency and in-flight comfort service attributes. Price is shown to be the most important purchase factor followed by in-flight comfort and then flight frequency. The study demonstrates the effect of company size on traveller's selection of these utilities.
Highly emphasized in entrepreneurial practice, business models have received limited attention from researchers. No consensus exists regarding the definition, nature, structure, and evolution of business models. Still, the business model holds promise as a unifying unit of analysis that can facilitate theory development in entrepreneurship. This article synthesizes the literature and draws conclusions regarding a number of these core issues. Theoretical underpinnings of a firm's business model are explored. A six-component framework is proposed for characterizing a business model, regardless of venture type. These components are applied at three different levels. The framework is illustrated using a successful mainstream company. Suggestions are made regarding the manner in which business models might be expected to emerge and evolve over time.
We analyze the effects of competition on price dispersion in the airline industry, using panel data from 1993:Q1 through 2006:Q3. Competition has a negative effect on price dispersion, in line with the textbook treatment of price discrimination. This effect is pronounced for routes with consumers characterized by relatively heterogeneous elasticities of demand. On routes with a homogeneous customer base, the effects of competition on price dispersion are smaller. Our results contrast with those of Borenstein and Rose, who found that price dispersion increases with competition. We reconcile the different results by showing that the cross-sectional estimator suffers from omitted-variable bias. (c) 2009 by The University of Chicago. All rights reserved..
We investigate the entry of low-cost airlines (LCAs) in the German market. The strong competitive pressure of LCAs forced incumbent air and rail operators to reconsider their pricing strategy. Lufthansa reacted by a drastic cut of all prices for all intra-German origin and destinations (O&Ds). The physical conditions of DB, the incumbent railroad operator, made it harder to react. Being an open system, changing the price system on one O&Ds has substantial opportunity costs on other O&Ds in the same rail network. This imposes constraints on price strategies LCA and Lufthansa do not have to satisfy to the same extent.
Meaningful definitions of and distinctions between airline business models are not easily formulated, particularly when one considers the extremely dynamic nature of the industry. The paper outlines a product and organizational architecture (POA) approach to classifying and relating key elements of airline business models. Using indices to create benchmark metrics, the POA model is then used to examine and compare six European airlines. The analysis shows that there are important differences in the business models of airlines that are all commonly referred to as [`]low cost carriers'. The paper demonstrates how differences in the business models adopted by the different airlines contribute to their relative profitability.
We model firms as supplying utility directly to consumers. The equilibrium outcome of competition in utility space depends on the relationship pi(u) between profit and average utility per consumer. Public policy constraints on the "deals" firms may offer affect equilibrium outcomes via their effect on pi(u). From this perspective we examine the profit, utility; and welfare implications of price discrimination policies in an oligopolistic framework. We also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two-part tariffs.
The authors study dispersion in the prices an airline charges to different passengers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a route is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differences alone. Dispersion increases on routes with more competition or lower flight density, consistent with discrimination based on customers' willingness to switch to alternative airlines or flights. The authors argue that the data support models of price discrimination in monopolistically competitive markets. Copyright 1994 by University of Chicago Press.
This paper considers a nonlinear pricing framework with both horizontally and vertically differentiated products. By endogenizing the set of consumers served in the market, we are able to study how increased competition affects nonlinear pricing, in particular the market coverage and quality distortions. We characterize the symmetric equilibrium menu of price-quality offers under different market structures. When the market structure moves from monopoly to duopoly, we show that more types of consumers are served and quality distortions decrease. As the market structure becomes more competitive, the effect of increased competition exhibits some non-monotonic features: when the initial competition is not too weak, a further increase in the number of firms leads to more types of consumers being covered and a reduction in quality distortions; when the initial competition is weak, an increase in the number of firms leads to fewer types of consumers being covered, though the effect on quality distortions is not uniform.
Using evidence from an original dataset of more than 12 million fares, this study sheds light on two issues relating to the pricing behaviour of the main European airlines: 1) the extent to which an airline’s dominant position at the origin airport, at the route and the city-pair level affects the airlines’ market power; 2) whether fares follow a monotonic time path consistent with the pursuing of an inter-temporal price discrimination strategy. Our estimates reveal that enjoying a dominant position within a route is conducive to higher fares, possibly because of the limited size of many “natural monopoly” routes that facilitate the incumbent’s engagement in a limit pricing strategy. On the contrary, a larger share within a city-pair does not seem to facilitate the exercise of market power, thereby suggesting the existence of a large degree of substitutability between the routes in a city-pair.
When both individual and aggregate consumer demand is uncertain and firms set prices before demand is known, price‐taking firms may offer advance‐purchase discounts. Consumers with relatively more certain demands and with relatively lower valuations have an incentive to buy in advance the presence of other consumers with higher valuations and more uncertain aggregate demand increases the price they expect to pay in the spot market. Advance‐purchase sales are made to low‐valuation customers, as predicted by traditional models of second‐degree price discrimination, without assuming that firms have market power.
Quantity-Based RM.- Single-Resource Capacity Control.- Network Capacity Control.- Overbooking.- Price-based RM.- Dynamic Pricing.- Auctions.- Common Elements.- Customer-Behavior and Market-Response Models.- The Economics of RM.- Estimation and Forecasting.- Industry Profiles.- Implementation.
The “Southwest Effect” is a well-known phenomenon within the airline industry where markets that Southwest Airlines enter see an increase in traffic and a decrease in average airfares. This paper examines the role of Southwest Airlines in altering fares and passenger traffic and the Southwest Effect at airports in multi-airport regions. A comparison between Southwest-served routes and non-Southwest-served competing routes shows that the elements of the Southwest Effect are present even in those markets not served by Southwest. Southwest-served multi-airport regions studied include Chicago, Washington, DC/Baltimore, Houston, and south Florida.
The paper offers a comment on an earlier article by Hazledine that argued a business model adopted by Air Canada and Air New Zealand allows them to compete with low cost airlines. Examination of the model, however, indicates that it offers only limited protection from low cost airlines competition that has the option of replicating the model itself if it proves successful in the short-term.
We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a non-monotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but is associated with less price dispersion in competitive markets (i.e. an inverse-U relationship). Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature.
Undoubtedly, low‐cost operation has been a very successful business model in the airline industry. Over the past 5 years, there has been a widespread departure from the original low‐cost model introduced by Southwest Airlines. The low‐cost carriers tended to follow a differentiation strategy as opposed to cost leadership on which the original low‐cost model was based. The objective of this paper is to assess the degree by which the original low‐cost model has been modified over the years, and to ascertain whether the degree of adherence to the original model has any impact on the profit level of low‐cost airlines. The performance and business models of ten longer‐established US and European low‐cost carriers are analysed and evaluated against the original model of Southwest Airlines. Analysis indicates that although an increasing number of ‘hybrid’ low‐cost models are achieving low operating costs, offering low fares and returning attractive operating profit margins, there is a case for recommending adherence to the original model to ensure greater profitability.
The rise of low-cost carriers (LCCs) is challenging traditional structures in the aviation industries. This article focuses on the impact of LCCs on airports, analyzing the example of Hanover Airport, a medium-sized international airport in Germany. The analysis is based on a survey that included more than 15,000 passengers at Hanover Airport. The survey was sponsored by Hanover Airport and conducted by the Department of Economic Geography of the University of Hanover in 2003. The results show that LCCs can help airports to enlarge their catchment areas and strengthen their competitive position in national aviation markets.
While many industries reach a point of maturation, the airline industry is evolving to incorporate flexible strategies for business models that adapt to the changing economic environment. New business opportunities have emerged as a result of a variety of internal and external forces. This paper discusses opportunities for long-haul low-cost airlines by looking at the evolution of the model and defining three types of new business models.
After the work of the late Professor F. Y. Edgeworth one may doubt that anything further can be said on the theory of competition among a small number of entrepreneurs. However, one important feature of actual business seems until recently to have escaped scrutiny. This is the fact that of all the purchasers of a commodity, some buy from one seller, some from another, in spite of moderate differences of price. If the purveyor of an article gradually increases his price while his rivals keep theirs fixed, the diminution in volume of his sales will in general take place continuously rather than in the abrupt way which has tacitly been assumed.
This paper looks at estimated valuations of some service‐quality attributes in an airline choice context using stated preferences methods. The analysis is based on information obtained in the most important route connecting the Canary Islands with the Iberian Peninsula: Gran Canaria–Madrid, and tries to contribute to the body of knowledge in this area, given the relatively few studies of the monetary valuations of air travel regarding level‐of‐service attributes. A feature of this analysis is the examination of variations in values according to different characteristics of the service, such as price, penalties for changes in the ticket, legroom, food, etc.; the currently experienced level of the attribute, and various socio‐economic factors that affect the characteristics of the trip and passengers. In addition, the important issue of added value regarding different attributes is addressed, obtaining the willingness‐to‐pay for different improvements of service quality. A further analysis is made about how taste heterogeneity (market segments) affects these values. Results from the stated preference experiment and the market value of some comparable service are also compared. Finally, the paper brings together evidence from other studies and compares them with the findings obtained herein.
Only a few years ago European low-cost service was almost exclusively focused on Western Europe. However, the enlargement of the European Union to East Central Europe has brought with it an expansion of the liberalised air space, thereby offering new opportunities for service to Community airlines. Low-cost air service has since diversified in favour of new west–east air links that represent almost 60% new routes that have opened up between Western and East Central Europe. The western low-cost airlines dominate the market rather than Eastern European ones. The new west–east routes reflect new forms of mobility: post-migration flows from the east by those who have gone to work in Western Europe, new tourist practices and undoubtedly new types of business as well.
This paper examines the role that low fare air carriers play in determining air fares in the US. Regression modeling is used to test variables focusing on geographic and competition issues effecting airfare pricing. Variables tested in the modeling include the presence of low fare carriers in a market, hub domination, market share, and type of destination served. The final results show that low fare carriers play a statistically significant role in airfare determination in the US.
Awareness of tourists’ length of stay and the factors which determine that is an essential element for good planning and management at tourist destinations. This article analyses to what extent the personal characteristics of the low-cost tourist, those of the trip and stay and those of the destination itself are significant in determining the duration of a trip. To this end an econometric duration model is estimated. The results obtained show that the effect of time restrictions seem to be relevant for explaining the observed differences in length of stay, as well as the effects of the tourist's spending capacity, prices and the differences between urban and “sun and sand” destinations. Furthermore, the model also allows us to analyse changes in the likelihood of the stay being ended at a specific point in time (hazard) associated with changes in the explanatory variables, and to obtain predicted survival times for different groups of tourists.
This paper examines the determinants of air traffic volume in the major European urban regions, highlighting those that depend on the metropolitan features of cities. We used homogeneous urban and airline data that make international comparisons possible. We found that GDP, the level of economic decision-power, tourism functions, and the distance from a major air market account for more than two-thirds of the variation in air service. This seems to indicate that air service remains profoundly rooted in the metropolitan features of urban regions (notably size and decision-power), even if low-cost airlines are probably less linked to the latter because they partly focus on niche markets and regional airports. Much of the remainder is probably attributable to the specificities of the urban economy, to actors’ strategies and to competition from high-speed trains.Research highlights► Systematic and original analysis of the determinants of air traffic volume in Europe. ► Air service remains profoundly rooted in the metropolitan features of urban regions. ► Actors’ strategies and competition from high-speed trains also play a role.
The importance of business and social networks in generating trade is becoming increasingly recognized in the international economics literature. An important way in which people build and maintain networks is through face-to-face meetings. I propose an empirical model in which business travel helps to overcome informational asymmetries in international trade, generating international sales in the form of new export relationships. The empirical evidence, using a unique survey of all outbound travelers from the U.S. on international flights, which differenti-ates between business and leisure travel and U.S. resident and non-resident travel, and exploits relative changes in U.S. visa policy towards non-Visa Waiver Program countries in the aftermath of September 11 to instrument for international travel, supports the model. Business travel to the United States by non-resident, non-citizens has a positive impact on the extensive export margin. The effect is driven by travel from non-English speaking countries, for which commu-nication with the U.S. by other means may be less effective. Moreover, the effect is stronger for differentiated products and for higher-skilled travelers, reflecting the information-intensive nature of differentiated products and that higher-skilled travelers are better able to transfer information about trading opportunities. Together, the evidence provides support for the many U.S. Department of Commerce export promotion programs designed to bring prospective im-porters to the U.S. to facilitate trade matchmaking.
This paper examines the pricing behaviors of United States air carriers in domestic markets. With quarterly observations in 2000 and 2005, we use a heteroskedasticity-adjusted Instrumental Variable technique to investigate the carriers' pricing strategies. The results show differential pricing strategies practiced by United States air carriers. American, United, Continental, and Northwest Airlines have higher airfares than Delta and Southwest Airlines in 2005. In 2000, all the carriers, except Delta have the same relationships with airfares. Furthermore, the findings suggest that the carriers' pricing strategies can vary under the same market condition, indicating that carriers' managerial decisions may influence their airfares.
Competing firms often use product lines to screen different types of customers. Examples include, in general markets, product
lines that screen the purchasing ability or preference for quality; in credit markets, product lines that screen the risk
of the projects with different collateral; in insurance markets, product lines that screen the risk of accident with different
coverage; and in labor markets, wage schedules that screen the employees’ abilities with different education levels. In some
of these markets there can be some natural quality constraints: a maximum available quality in general markets, no negative
collateral in credit markets; coverage not above 100% in insurance markets; minimum education level in labor markets. We present
sufficient conditions for the existence of a pure strategies equilibrium (in such markets) under differentiation and a continuous
distribution of customer types. We show that the equilibrium exists if there is a sufficiently high degree of differentiation
among firms. Furthermore, we show that this equilibrium involves, under certain general conditions, pooling of customer types
at the top and at the bottom of the distribution of customer types. The middle types may still be screened by the firms.
Since the Third Package in 1993, European Union (EU) registered airlines have been able to purchase majority ownership of other EU carriers and set up airlines in other EU countries. This paper investigates how European majors have responded to the liberalised policy, especially European Commission Regulation 2407/92. It goes on to analyse the impact of these strategies for airlines and the EU–US relationship in terms of airline alliances. It concludes that British Airways and the SAirGroup have pursued a policy of acquiring airlines in EU countries, with the former finding it an expensive and questionable strategy, and the latter disastrous.
The growth of low-cost carriers (LCCs) is currently focused on the Western European market, where they represent the most determining factor in the evolution of airline networks. In this area, they stand for 18% of the total air transport supply according to seats. Limited to short and medium haul flights, networks are not too concentrated (no hubs). They are North–South, and compete with—when they have not replaced—some charter routes. The use of air freedoms beyond the fourth is still limited, but exclusive routes are a frequent phenomenon linked to the option for secondary (urban or regional) airports and/or niches.Finally, low-cost carriers give fresh impetus to point-to-point routes by drawing new networks complementing those of full service network carriers (FSNCs). If no hubs as such can be found in these new networks, significant concentrations characterize the major bases.The geography of low-cost networks is to a large extent the geography of EU air transport liberalization.
This paper asks whether the economic success of low cost carriers (LCCs) has been achieved through optimizations of network structures to liberalized market conditions. By examining the network structures of six successful LCCs, the paper moves away from the idea of a “low cost carrier model” and instead highlights the range of spatial strategies employed by budget airlines in liberalized marketplaces. Findings show that significantly different spatial models are employed by the six carriers examined in this study. Unlike previous studies on the networks structures of LCCs, this paper moves beyond any one specific region and looks at the networks of budget airlines in Asia, Europe, and North America. Fundamental differences in the network structures of LCCs on these three continents indicate that liberalization has allowed for the utilization of a variety of spatial operating models rather than a singular optimal model.
In the airports industry, there is a trade off between imperfect (or monopolistic) competition and economic regulation (with the latter introducing separate economic distortions). The nature of the imperfectly competitive market in the supply of airport services is examined and it is suggested that market power is the consequence of the problems of gaining access to competing sites rather than of natural monopoly. Nevertheless, there are opportunities for substitution between airports (and other modes of transport) depending upon the characteristics of the market and historical and geographical circumstance although substitutability is too narrow a criterion for judging market power because of the transmittal effects of price competition in a spatial market. It is then suggested that some unusual economic characteristics of the industry provide an incentive for airports not to exploit market power and, absent these incentives, the adverse economic costs of exercising market power might be small. The paper concludes by suggesting that ex-post regulation of conduct provided for under normal competition law is probably sufficient to curb monopolistic excesses.
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. ©
This paper generalizes the study of nonlinear tariffs, i.e., those depending nonlinearly on the quantity purchased, to the case of a symmetric oligopoly. Competitive equilibria and the corresponding tariffs are analyzed in a Cournot framework. Various equilibria are obtained, which depend both upon the number of competing suppliers and the choice of market parameters used to characterize the competitors' strategies. Buyers are classified by type, each selecting an optimal consumption level in response to the prevailing tariff. The phenomena of buyer self-selection found in monopoly nonlinear pricing and the scaling of equilibrium demand elasticity found in Cournot models both appear in the results.
The severe crisis of the global aviation industry has primarily struck the “classical” Network Carriers (NCs) with their complex hub&spoke operation platforms. The crisis was deepened, but by no means caused, by the terrorist attacks on September 11, 2001. The root cause was the end of a temporary revenue “bubble” after the first Iraq war, leading to historically high airline profits and major capacity expansions. After the end of the “golden” 90 s, an economic downturn and a fear of terrorism resulted in massive overcapacities, with yields showing a return to continued long-term decline.Surprisingly at first glance, low-cost carriers (LCCs) were not only spared, but boosted by this massive downturn. Their lean business model offered a compelling alternative at a time when passengers began looking for ways to avoid paying the high prices NCs demanded in order to maintain their complex hub&spoke systems. On continental travel routes, LCCs are able to deliver 80% of the service quality at less than 50% of the cost of NCs. Consequently, LCCs can—at least in theory—tackle more than 70% of continental O&Ds (in the US as well as in Europe), taking them far from their origins as niche businesses. However, for most intercontinental routes (as well as some continental ones) bundling demand in a hub remains an indispensable requirement. The challenge for NCs is now to reinvent their own business model. If they succeed in providing almost the same service level at drastically reduced cost, they would not only stabilize their position, but also lead the industry as a whole to the next level of efficiency. This article analyzes the key drivers of the current transition phase and outlines the vision of advanced airline business models that potentially lead to a new era of equilibrium.
The purpose of this paper is to analyze the international development of the low cost airline model. The paper examines and seeks to characterize the factors which have encouraged and inhibited the spatial and temporal spread of low cost carriers. A typology of low cost carriers is developed to illustrate the diversity of practices identifiable under the generic low cost banner. The authors of this paper identify stages of development with respect to time and compare the development of low cost operations in different countries of the world. The economic and political impacts of the spread of the low cost model are examined and the sustainability and future patterns of growth considered.
Competition in airline markets may be tough. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive in less dense routes and shorter routes.
Samenvatting in het Nederlands. Proefschrift Amsterdam, VU. Met lit.opg.
This paper tests whether the observed dominance of most city-pair markets and airports in the U.S. domestic airline industry by single carriers confers any pricing power on the dominan t firms. The results of fixed-effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power , whereas dominance at the route level seems to confer no such pricing power. Additionally, the authors find a positive, yet small, correlation between both route concentration, and price and airport concentration and price. The quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry's performance is to ensure equal acc ess to sunk airport facilities. Copyright 1993 by MIT Press.
This paper estimates a model of spatial multiproduct duopoly pricing when the location patterns differ across markets. The theoretical model suggests that the neighbouring configuration yields less competitive Nash prices than the interlaced configuration. I apply this model to data for intra-European duopoly airline markets. The empirical results support the theoretical model since I find that fares are higher on intra-European markets that exhibit neighbouring configurations in the time domain. This result suggests that price competition is reduced when each airline operates on a specific segment of the timetable (e.g. the first 12 hours of the day). Clearly, this result has several implications for policy makers and/or airport authorities in charge of awarding slots.
When capacity is costly and prices are set in advance, firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price. I show that the optimal price strategy of a monopolist and the unique pure-strategy Nash equilibria of oligopolists both exhibit intrafirm price dispersion. Moreover, as the market becomes more competitive, prices become more dispersed, a pattern documented in the airline industry. While generating similar predictions, the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers.
Traditional peak-load and stochastic peak-load models assume firms have prior information about when peak demand occurs. However, price dispersion, such as is typically used by firms practicing yield management, can achieve some of the same efficient demand shifting even when the peak time is unknown. Equilibrium price dispersion arises because of stochastic demand and price rigidities, but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting. The model also suggests how yield management (now more commonly called revenue management) might actually benefit business travellers, contrary to the popular prejudice.
This article considers the problem of "supply-and-demand" analysis on a cross section of oligopoly markets with differentiated products. The primary methodology is to assume that demand can be described by a discrete-choice model and that prices are endogenously determined by price-setting firms. In contrast to some previous empirical work, the techniques explicitly allow for the possibility that prices are correlated with unobserved demand factors in the cross section of markets. The article proposes estimation by "inverting" the market-share equation to find the implied mean levels of utility for each good. This method allows for estimation by traditional instrumental variables techniques.
This article estimates the importance of route and airport dominance in determining the degree of market power exercised by an airline. The results indicate that an airline's share of passengers on a route and at the endpoint airports significantly influences its ability to mark up price above cost. The high markups of a dominant airline, however, do not create much of an "umbrella" effect from which carriers with smaller operations in the same markets can benefit. The article suggests a number of possible explanations for this asymmetry.
We examine how incumbents respond to the threat of entry by competitors (as distinct from how they respond to actual entry). We look specifically at passenger airlines, using the evolution of Southwest Airlines' route network to identify
particular routes where the probability of future entry rises abruptly. We find that incumbents cut fares significantly when
threatened by Southwest's entry. Over half of Southwest's total impact on incumbent fares occurs before Southwest starts flying.
These cuts are only on threatened routes, not those out of non-Southwest competing airports. The evidence on whether incumbents
are seeking to deter or accommodate entry is mixed.