Competitive responses of an established airline to the entry of a low-cost carrier into its hub airports

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This paper investigates the competitive responses of China Eastern to the entry of Spring Airlines into its hub airports in Shanghai. The analysis takes into account of the actual and adjacent competition for both LCCs and full-service airlines (FSAs) within an airport-pair framework. The results of the econometric analysis showed that Spring put downward pressure on the average fares of China Eastern and other FSAs. But China Eastern responded more aggressively than other FSAs to Spring’s competition on routes from the same and nearby airports.

Another interesting finding of this research is that competition from FSAs, whether it is from the actual or adjacent airports, also plays an important role in reducing fares. The competitive effects of legacy carriers, as our study has showed, suggest that mergers between legacy carriers may lead to higher fares on overlapping routes.

Collected and summarized from the source below by Giang Tan