The Impact of Low-Cost Carriers on Airport and Route Competition

Abstract

This chapter extends previous research to examine competitive impacts of low-cost carrier entry. It provides a brief literature review on airport entry by low-cost carriers. The chapter analyses the competitive effects of Southwest's entry onto routes at Baltimore-Washington International in the third quarter of 1993. It presents a more comprehensive econometric analysis of the competitive price effects of entry by low-cost carriers into US domestic markets. Southwest Airlines was an intrastate carrier in the years before the Deregulation Act of 1978, serving markets in the state of Texas. The presence of a low-cost carrier on the route reduces fares by 53 percent when Southwest is considered to be the only low-cost carrier and by 38 per cent when a wider definition of low-cost carriers is used. A problem with using a case study analysis of this type is that it is difficult to control for other changes that take place during the time period of the case study.