Economic impact of low-cost carrier in a saturated transport market: Net benefits or zero-sum game?

Abstract

The introduction of low-cost carriers (LCCs) can improve the accessibility of destinations, stimulate suppressed demand, and offer transportation attractive to lower income residents. This present study estimates the economic contribution of the entry of an additional LCC into a mature transport market. Both primary and secondary data are used to estimate both direct and indirect economic impacts to the host economy. This research framework captures both displacement effects and the demand for an additional LCC among domestic travelers leaving the destination. Taking these effects into account, there is limited net economic contribution to the host economy with a mature transport market. Based on these findings, local governments as well as aviation policymakers are advised to consider all the economic injections and leakages created by the potential LCC in assessing the economic feasibility of new entrants, especially considering the development stage of a transport market.

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