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Competition in the European aviation market: the entry of low-cost airlines

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  • Alderighi, Marco
  • Cento, Alessandro
  • Nijkamp, Peter
  • Rietveld, Piet

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.

Suggested Citation

  • Alderighi, Marco & Cento, Alessandro & Nijkamp, Peter & Rietveld, Piet, 2012. "Competition in the European aviation market: the entry of low-cost airlines," Journal of Transport Geography, Elsevier, vol. 24(C), pages 223-233.
    • Handle: RePEc:eee:jotrge:v:24:y:2012:i:c:p:223-233
    DOI: 10.1016/j.jtrangeo.2012.02.008
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