Low-cost carriers fare competition effect

Abstract

This paper examines the effects that low-cost carriers (LCC’s) produce when entering new routes operated only by full-service carriers (FSC’s) and routes operated by low-cost carriers in competition with full-service carriers. A mathematical model has been developed to determine what routes should be operated by a low-cost carrier with better possibilities to subsist. The proposed model in this paper was set up by analyzing The United States domestic air transport market 2005 year database from airport to airport by airline competitor. Distance is the only variable taken into account by the model. This model analyses the relation between the real fare data ($) and the distance (miles) with a linear regression equation. The model generates three lines that includes amongst them 68% of the approximately 18,000 routes by calculating a standard deviation and estimates the minimum, maximum and average fare for a low-cost carrier given the distance the model determines in which routes a low-cost carrier could be successful by comparing, route by route, the real data airline fares against the low-cost minimum, maximum and average fare estimated per distance.Marine & Transport TechnologyMechanical, Maritime and Materials Engineerin