The Effect of Low-Cost competition on Airfares in the European Skies

The main objective of this work is about the contribution to the existing literature regarding the effects on airfares resulting from Low-Cost Carriers (LCCs) in the gateway-to-gateway European market. To the best of our knowledge, this is the first paper describing the impact of LCCs’ operations on ticket prices in Europe. Following a descriptive analysis, a panel data econometric model is developed. Data are mostly collected from the Official Aviation Guide (OAG) and consists of monthly based observations collected from carriers marketing and operating flights in Western and Eastern Europe between January 2016 and December 2019. Our results confirm a 17% airfare reduction when LCCs operate a route and a monotone negative trend as their market share increases. Finally, FSCs rise their fares when competing with LCCs: the average increase varies with the market share of the competitors and this time the function has a maximum: if LCCs’ market share remains below 45%, FSCs’ fares increase, otherwise their prices decrease as well. Our results provide updated insights to help reshaping the European airline scenario according to a genuine regime of competition and offers support and help to policy makers in their understanding of the effects of open sky liberalizations (LCCs) and competition that must be scrutinized carefully by antitrust authorities.