Are low cost carriers airfares still lower? A comparison with full service carriers in Europe

The main objective of this work is to contribute to the existing literature on the effects of competition from Low-Cost Carriers on airfares in the European non-stop market. To the best of our knowledge, this is the first paper describing the impact of the operations of LCCs on ticket prices in Europe using data from real transactions (i.e., passengers ticket data including prices) covering all routes and not only a small sample. Data is taken from Official Aviation Guide (OAG) and consist of monthly price observations charged by all carriers marketing and operating flights in Western and Eastern Europe between January 2016 and December 2019. We find evidence that fares are about 11% lower if at least one LCC is operating in the route in comparison to markets where only FSCs are present. By taking the average fare in our data set for a non-stop flight, this reduction amounts to about $11 US savings. Moreover, we notice that FSCs increase their fares if the LCCs market share is lower than 19%; beyond this threshold they also reduce prices in order to match the strong competition and robust market presence of LCCs. These results confirm that liberalization has long-run effects, as LCCs are still cheaper after about 30 years since the beginning of liberalization and after their robust market consolidation.