chapter  7
Low-cost airlines and airport competition
ByEric Pels, Nenad Njegovan, Christiaan Behrens
Pages 12

An important question from the viewpoint of competition analysis in the air transport industry is the extent to which low-cost airlines operating from a secondary airport compete with full-service airlines serving a main airport in a multiple airport region. In this paper we address the issue of the competition between full-service and low-cost airlines serving adjacent airports in the Greater London using econometric estimation of demand structure (own-and cross-price elasticities). Our analysis follows the methodology in (Pels, E., Nijkamp, P., Rietveld, P., 2000. Airport and airline competition for passengers departing from a large metropolitan area. Journal of Urban Economics, 48 (1), 29-45, Pels, E., Nijkamp, P., Rietveld, P., 2003. Access to and competition between airports: a case study for the San Francisco Bay area. Transportation Research Part A: Policy and Practice, 37 (1), 71-83). It is based on the nested logit model which we use to capture three key dimensions of passenger choice: air fare, surface-access costs and frequency. We obtained estimates of the own-and cross-price elasticities, which was the focus of our interest. On the basis of our understanding of the industry dynamics we find these estimates, especially of the cross-price elasticities, to be on the low side.