Airline Competition and LCCs in the North Atlantic Market

Open skies agreements have allowed for greater competition on North Atlantic routes, including entry by low-cost carriers. At the same time, airline alliances have formed cooperative arrangements that may mitigate competition. Data are gathered on North Atlantic routes and the impact of low-cost carrier and alliance competition is assessed. We find that the entry by the largest low-cost carrier, Norwegian, on a gateway-to-gateway route results in fare reductions of about 12 per cent. An additional alliance carrier, however, has no impact on gateway-to-gateway fares since the benefits from an additional competitor are offset by the dis-benefits from alliance cooperation.