Entry Determinants in EU Regions by Low Cost and Traditional Carriers

This paper address the issue of the entry patters on intra-EU routes between 1998 and 2008, that is to say after the full deregulation and all the way through the explosion of the low cost phenomenon. We test whether or not the characteristics that usually determine entry decisions affect traditional and low cost carriers in different ways. We model entry decisions by different types of airlines within the same framework and during a time span of 10-year. As far as we know, this should allow to get more general insights than those provided by the existing literature (at least with reference to the European network). The network considered is composed of the major 100 European airports while we analyse the entry decisions made by the first 10 airlines ranked by the number of new entries during the involved period. Our preliminary results show that the entry determinants identified in the influential work by Steven Berry (1992) still apply to the recent network evolution, albeit with a notable exception. Indeed, with reference to the EU network, we do not find to be more likely that a carrier adds a new route to its main base or hub. The main motivation is that the point-to-point network by low cost carriers has geographically expanded mainly by opening new small bases. Consequently, the traditional airlines concentrated intercontinental flights at their main hubs, thus developing most of the new intra-European routes from their secondary airports. Finally, our analysis by airlines shows that Ryanair entry behaviour significantly differs from those of the other low cost carriers. The previous presence in one of the airports connected is among the factors that most influence the decisions of entry into a new market. Moreover, airlines seem to react to signals concerning the profitability of the markets. Most of them prefer to enter routes already operated by other carriers and then try to curb their market share. Ryanair, on the contrary, prefers to enter markets that ensure a position of monopoly. Both these results are consistent with some of our previous results about the fact that the number of carriers depends, among other things, on the level of demand for each particular pair of destinations, so that a low level of demand (signaled by a low frequency of flights) is sufficient to impose low fares to some extent irrespective of the degree of competition as traditionally defined.