The Effect of Ultra-Low Cost Carrier Market Presence on the Market Fare of a Network Legacy Carrier and the Difference with Low-Cost Carrier Market Presence

Low-cost carrier (LCC) market growth has been a great competitive drive in the U.S. airline industry over the past decades. However, indications of a stagnation in LCC growth are appearing. Several studies have pointed to the rise of a new type of carrier, the ultra-low cost carrier (ULCC). This raises the question whether ULCCs can become a new driver of competition in the U.S. domestic airline industry. This study examines the effect of ULCC market presence on the market fare of a network legacy carrier (NLC) and examines whether this effect is different from LCC market presence. In addition, the possible moderating effect of total ULCC market share is studied. This is researched using a panel data set containing 51,022 unique observations over the period of 2006 to 2015. The findings show that both ULCC market presence and LCC market presence are found to be a significantly negatively related to the market price of the NLC. Both relationships are of rather similar magnitude. Therefore, no evidence is found that ULCC market presence is related to larger reductions in the NLC market fare than LCC market presence. Additionally, no evidence was found for a moderating effect of market share. This means that there is no support to conclude that ULCC market presence with a large market share is related to larger reductions in the NLC market fare than ULCC market presence with a small market share. The findings provide an indication of a price pressing effect of ULCC market presence on NLC market fares, which could indicate that ULCCs could be a new competitive driver in the U.S. airline industry.