The effect of the entry of low-cost airlines on price and passenger traffic

Many researches about the impact of low-cost airlines are documented since it is one of the most popular topics in airline transport. Generally, the previous findings convince that the entry of low-cost airlines significantly depresses price while increases the passenger traffic. This paper extends to investigate how the low-cost airline impacts the pricing and passenger traffic currently. The sample covers factors in terms of demand, cost and market concentration, using quarterly figures from 1997 to 2010. Moreover, a series of methods including OLS, Fixed effect model and IV estimation, are performed stepwise to explore the most reliable estimation. The low-cost airlines’ entrance does reduce price but at a lower level while the passenger traffic is indirectly affect by the low-cost carriers through price.