Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future

Brown University Department of Economics Paper No. 2003-12

30 Pages Posted: 13 May 2005

See all articles by Harumi Ito

Harumi Ito

National Bureau of Economic Research (NBER)

Darin Lee

Compass Lexecon; Law and Economics Consulting Group (LECG), LLC

Date Written: April 9, 2003

Abstract

This paper documents the growth of low cost carriers (LCCs) in the U.S. airline industry since 1990. By estimating simple probit models, we quantify the market characteristics which have influenced nonstop LCC entry in 351 city-pair markets over the past decade. We confirm that pre-entry market density is the single most important factor influencing LCC entry into a city-pair market. For each of the large-hub-and-spoke carriers, we quantify their past, present and future exposure to LCCs. In particular, we predict which markets currently not served by LCCs are the most likely to be entered in the future. Finally, we predict the proportion of network carrier revenue that may ultimately be exposed to nonstop LCC competition.

Keywords: Airlines, Market Entry, Deregulation

JEL Classification: L11, L93

Suggested Citation

Ito, Harumi and Lee, Darin N., Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future (April 9, 2003). Brown University Department of Economics Paper No. 2003-12. Available at SSRN: https://ssrn.com/abstract=719741 or http://dx.doi.org/10.2139/ssrn.719741

Harumi Ito (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Darin N. Lee

Compass Lexecon ( email )

United States

Law and Economics Consulting Group (LECG), LLC ( email )

350 Massachusetts Avenue, Suite 300
Cambridge, MA 02139
United States

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