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The construction of a low cost airline network

Author

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  • Hüschelrath, Kai
  • Müller, Kathrin
  • Bilotkach, Volodymyr

Abstract

The paper investigates the construction of a low cost airline network by analyzing JetBlue Airways' entry decisions into nonstop domestic U.S. airport-pair markets between 2000 and 2009. Adopting duration models with time-varying covariates, we find that JetBlue consistently avoided concentrated airports and targeted concentrated routes; network economies also affected entry positively. For non-stop entry into a route that has not been served on a non-stop basis before, our analysis reveals that the carrier focused on thicker routes and secondary airports, thereby avoiding direct confrontation with network carriers. Non-stop entry into existing non-stop markets, however, shows that JetBlue concentrated on longer-haul markets and avoided routes already operated by either other low cost carriers or network carriers under bankruptcy protection.

Suggested Citation

  • Hüschelrath, Kai & Müller, Kathrin & Bilotkach, Volodymyr, 2011. "The construction of a low cost airline network," ZEW Discussion Papers 11-052, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:11052
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    File URL: https://www.econstor.eu/bitstream/10419/48875/1/666334943.pdf
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    References listed on IDEAS

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    1. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-245, September.
    2. Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
    3. Oliveira, Alessandro V.M., 2008. "An empirical model of low-cost carrier entry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(4), pages 673-695, May.
    4. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 51(1), pages 91-112, March.
    5. Morrison, Steven A & Winston, Clifford, 1990. "The Dynamics of Airline Pricing and Competition," American Economic Review, American Economic Association, vol. 80(2), pages 389-393, May.
    6. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters,in: Credit and State Theories of Money, chapter 1 Edward Elgar Publishing.
    7. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.
    8. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics.
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    Cited by:

    1. Bilotkach, Volodymyr & Lakew, Paulos Ashebir, 2014. "On sources of market power in the airline industry: Panel data evidence from the US airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 288-305.

    More about this item

    Keywords

    Airline industry; network; entry; low cost carrier;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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