Whether low-cost-carrier passengers spend more on duty-free goods at the airport? Evidence from Incheon International Airport

With a dramatic growth in the low-cost carrier (LCC) traffic around the world, many airports have built budget terminals to accommodate the LCC flights with cheaper airport charge to the airlines but inferior shopping environment and service quality to the passengers. This study aims to answer the following research questions: i). Whether the LCC passengers have higher purchasing power than FSC (full-service carrier) passengers for the airport concessions, particularly the duty-free goods? ii). Would the budget terminal design contribute to or jeopardize the LCC passengers' airport concession expenditure? iii). How could the airport operator maximize its concession revenue by re-designing terminal or re-allocating flight slots? We collect the actual airport duty-free transaction data from Incheon International Airport (ICN) for an empirical investigation. Our empirical evidence first suggests that LCC passengers could have comparable or even higher purchasing power than FSC passengers in consuming duty-free goods at the airport. Among all the LCC passengers, Chinese have the highest purchasing power. Second, the inferior shopping environment and service quality of budget terminal seriously jeopardize the duty-free sales from the LCC passengers. Third, counterfactual analyses show that, if ICN could convert its budget terminal into a conventional terminal, 44 million USD more duty-free sales can be generated per year. Even keeping the current terminal design, re-allocating the LCC flights between the budget terminal and conventional terminal could bring approximately 4.9 million USD more duty-free sales per year. The findings provide managerial implications to ICN and other airports for effective airport revenue management. First, the budget terminal design may not be ideal to accommodate LCC traffic as it damages the concession revenue from particular LCC passengers with high purchasing power. Second, exploring the concession revenue from the growing LCC traffic could help maintain an airport's advantage in aeronautical charge under single-till regulation.     

Segmentation of passengers using full-service and low-cost carriers – Evidence from Taiwan

Low-cost carriers in Taiwan have rapidly drawn a large number of passengers away from full-service carriers in recent years. However, many passengers still stick with traditional airlines as their primary air carriers. These two groups of passengers should differ in terms of their personal and trip characteristics, valuations of factors in determining an airline, and perceptions of need for ancillary services. The present paper compares the profiles of passengers using different types of air services in Taiwan using data collected from an online survey and assesses the potential of principal component analysis with biplot technique to define different passengers based on their preferences of services and valuations of the importance of factors. Our study shows that passengers of full-service and low-cost carriers have different trip characteristics; principal component analysis is applicable for this context of passenger profile segmentations.     

Carrier collaboration with endogenous networks: Or,the limits of what carrier collaboration can achieve under antitrust immunity

Airlines maintain complex networks that are to large extents complementary. Therefore, some passengers need to change aircraft and airlines to fly from their origin to their final destination. The present study captures pricing problems in terms of double marginalization but goes one step further by incorporating network choices. The model involves a two-stage game with two carriers who choose their complementary networks in the first stage and fares in the second stage. Each carrier's network involves one or two links that are distributed geographically or distributed in time. If both carriers maintain two links, then transfer passengers can choose between two alternative connections which they consider as imperfect substitutes. There are only transfer passengers, and maintaining a link is costly. The analysis reveals that carrier collaboration and antitrust immunity can eliminate double marginalization and create incentives to extend networks. Our results indicate that the scope for the improvement of carrier networks via antritrust immunity can be rather limited relative to the social desirability of more extensive carrier networks. A possible policy lesson is that airlines should be granted antitrust immunity conditional on network expansion and/or frequency obligations.     

Low-cost carrier entry at small European airports: Low-cost carrier effects on network connectivity and self-transfer potential

Airport connectivity can improve the competitiveness of regions by attracting tourism and inward investment. Regions traditionally accessed international destinations via connecting flights to national gateway airports usually operated by full service network carriers (FSNC). However, the entry of low-cost carriers (LCC) in these markets has led to changes in incumbent FSNC service provision. We analyse how intra-European connectivity has changed at small airports between 2002 and 2012 and how LCC entry has affected the quality of day-return schedules in these markets. Results show that offline LCC connectivity is greater than that scheduled by FSNCs. Furthermore, LCC entry had a negative effect on the quality of the connectivity offered by FSNCs. Interestingly, we also found that day-return itineraries become more difficult for passengers in markets where the LCC is the sole operator. Regional policy-makers may need to more carefully consider the connectivity implications in the design of LCC start-up incentive schemes.     

Adoption and loyalty toward low cost carriers: The case of Taipei–Singapore passengers

This study explores the determinants for the duration of airline passengers to adopt a low cost carrier (LCC) and their loyalty toward the LCC. The analysis results of travel information on 338 passengers traveling between Taipei and Singapore show that business passengers take longer duration to accept the LCC. Cheaper fares and convenient booking channels can shorten the passenger’s duration to adopt the LCC, whereas airline image and safety consideration can increase the duration. Frequent flyer programs and convenient booking channels can increase the passengers’ loyalty toward the LCC.     

Eco-positioning of airlines: Perception versus actual performance

To date there has been little research in air transport into the eco-positioning of airlines, that is, their environmental image relative to other airlines and how actual environmental performance relates to this eco-positioning. This paper identifies the environmental perceptions that passengers hold of twelve airlines and relates these perceptions to airlines' actual environmental performance, using load factors, aircraft age and the atmosfair Airline index as proxies for environmental performance. Based on a survey of over 600 passengers at Liverpool John Lennon Airport, the research analyses air travellers' perception of airlines from an environmental perspective. The results show that while there are significant differences in people's environmental perception of airlines, the eco-positioning of the airlines is not correlated to their actual environmental performance. The results support previous research findings in other industries that in many cases actual performance is less important than communicating environmental messages to the public in creating a superior eco-positioning.     

Airline strategies for aircraft size and airline frequency with changing demand and competition: A simultaneous-equations approach for traffic on the north Atlantic

Airport planners need to know the forecast demand on the facilities provided airside at airports. For this they need to know how airlines will deal with traffic in terms of the size of aircraft and frequency of service. In response to increasing demand, airlines may increase capacity by increasing the frequency of flights or they may choose to increase aircraft size. This may yield operating cost economies. If the airports they operate from are capacity constrained they will be limited in the extent that they can change frequency that will limit their ability to compete with the number of frequencies offered. Consequently, these airports are excluded as are major hubs as frequencies will be influenced by connecting passengers. Routes are identified on the north Atlantic that can be analysed and conclusions are suggested on the basis of three stage least-squares estimates for pooled time series-cross section data. An increase in passengers on the whole will result in a larger increase in frequency than in aircraft size but the impact of competition does not yield significant results due to the strategy of excluding certain categories of airport.     

The decline of the traditional travel agent model

This article analyzes the struggle between traditional travel agencies and airlines to gain control of the Spanish airline services market. Also analyzed is the strong emergence of a third player, online travel portals that act as online travel agencies. We use a multinomial logit model to study the influence of 27 socio-economic factors and trip attributes on passenger purchase channel choice. The results show that the profile of a passenger who has a greater likelihood of making his/her bookings online is that of a young person, a student or educated to a high level, a habitual traveler, booking a simple journey and using an LCC. The factors linked to an increased likelihood of making purchases by phone include: being male, middle-aged, on a business or short trip, and the passengers usually use a travel agency. Finally, passengers who are over 65 years of age, with a lower academic level, who use a travel agency and are going to make a more complicated journey, are more likely to purchase their tickets in-store.     

Airport–airline interaction: the impact of low-cost carriers on two European airports

This paper uses case studies to look at the impact of low-cost airlines on two European airports. Low-cost airlines continue to exert an influence in air transport markets and small airports face pressures to compete for their business. The low-cost model motivates airlines to negotiate contracts that significantly reduce aeronautical revenues, leaving airports to compensate by seeking commercial revenues from the increase in passengers. This has consequences for the airports, their passengers and the relationship between the airport and its existing operators. It is found that it is important for airport management to see both passengers and airlines as customers and to understand the resultant revenue streams, before negotiating preferential contracts with low-cost carriers.     

The impact of low-cost carriers on catchment areas of established international airports: The case of Hanover Airport,Germany

The rise of low-cost carriers (LCCs) is challenging traditional structures in the aviation industries. This article focuses on the impact of LCCs on airports, analyzing the example of Hanover Airport, a medium-sized international airport in Germany. The analysis is based on a survey that included more than 15,000 passengers at Hanover Airport. The survey was sponsored by Hanover Airport and conducted by the Department of Economic Geography of the University of Hanover in 2003. The results show that LCCs can help airports to enlarge their catchment areas and strengthen their competitive position in national aviation markets.     

Airline choice by passengers from Taiwan and China: A case study of outgoing passengers from Kaohsiung International Airport

Understanding what factors passengers consider when selecting an airline is critical, as airlines can utilize this information in market segmentation and marketing strategies. However, few studies have explored how passenger demographics and the nationality/type of carrier (full service or low-cost; regional or international) affect the choice factors of passengers when selecting airlines. The main objective of this study was to explore the airline choice factors considered by passengers, compare the choices of passengers with different demographics, and analyze which factors are emphasized by passengers from Taiwan and China when selecting airlines. We conducted a questionnaire survey of outgoing passengers at Kaohsiung International Airport in relation to 22 factors underlying their choice of airline. Using factor analysis, we identified the five factors: ground services, convenience, in-flight services, price, and travel availability. We then utilized cluster analysis to identify four groups, each concerned with price, comfort, convenience, and ground services, respectively. Nationality, age, income, flying frequency, and purpose of travel lead to differences in deciding which factors were considered by cross-strait passengers. Passengers of different nationalities concerned with different factors when selecting airlines. Our findings can add to the completeness of existing research as well as provide airlines with reference in developing marketing strategies for different customer groups.     

Low-cost airlines and airport competition

An important question from the viewpoint of competition analysis in the air transport industry is the extent to which low-cost airlines operating from a secondary airport compete with full-service airlines serving a main airport in a multiple airport region. In this paper we address the issue of the competition between full-service and low-cost airlines serving adjacent airports in the Greater London using econometric estimation of demand structure (own- and cross-price elasticities). Our analysis follows the methodology in (Pels, E., Nijkamp, P., Rietveld, P., 2000. Airport and airline competition for passengers departing from a large metropolitan area. Journal of Urban Economics, 48 (1), 29–45, Pels, E., Nijkamp, P., Rietveld, P., 2003. Access to and competition between airports: a case study for the San Francisco Bay area. Transportation Research Part A: Policy and Practice, 37 (1), 71–83). It is based on the nested logit model which we use to capture three key dimensions of passenger choice: air fare, surface-access costs and frequency. We obtained estimates of the own- and cross-price elasticities, which was the focus of our interest. On the basis of our understanding of the industry dynamics we find these estimates, especially of the cross-price elasticities, to be on the low side.     

Competing on value: Perspectives on business class aviation

This paper presents an airline consumer choice model to analyze value propositions – the benefits delivered to passengers in relation to the fares paid. The model is developed using a study of clientele flying business class, studying three premium start-up airlines Eos, MaxJet and Silverjet that provided business-class-only flights on London–New York routes. Premium airlines were compared to selected rival full-service carriers for sustainability of their business class value propositions, using preference profiles of five target customer groups that comprise the business class passenger population. We find that the three premium start-up airlines were superior in offering some appealing features at reasonable fares that were highly valued by some passengers, although they were unable to replicate some other attractive aspects in the value propositions of the incumbents. This suggests a coexistence of premium entrants and incumbent carriers would have been possible, had the environment they operated in not changed drastically for the worse, before the premium entrants had achieved the financial robustness necessary for survival.     

Evaluation of passengers' buying behaviors toward low cost carriers in Southeast Asia

The purpose of this paper is to examine how Southeast Asian passengers' attitudes and behaviors affect their buying intention and actual purchase of Low Cost Carrier (LCC) tickets. A research model was developed based on the Theory of Planned Behavior. A survey of 791 passengers was conducted in two major airports in Thailand to test the hypotheses. Results indicated the important role of passengers' attitudes, subjective norms, and perceived behavioral control in LCC passengers' buying behaviors. The paper provides LCCs with useful information about passengers’ attitudes and behaviors toward using LCC services, which will help the carriers form necessary strategies to attract more customers.     

What drives passenger loyalty to traditional and low-cost airlines? A formative partial least squares approach

Based on a case study involving passengers from Lufthansa, Croatia Airlines and Germanwings, we examine the determinants of passenger loyalty among users of traditional full-service airlines and of low-cost carriers. In particular, using formative modeling the study analyzes the effects of service quality and price on carrier choice and loyalty.     

The application of information values and construal level theory for examining low cost carrier advertisements

This study considers the effectiveness of destination-focused vis-à-vis price-focused advertisements commissioned by low-cost carriers (LCCs) through the sign and hedonic information values embedded within the advertisements, and construal level theory. Based on 2 × 2 between-subjects factorial design with temporal distance (12 months versus 2 weeks) and advertisement type (destination-versus price-focused) as independent variables, the analysis revealed that, including sign and hedonic values better explain recommendations to fly LCC than if only using advertisement attitude. The influence of sign value on recommendation intention is more limited than that of hedonic value. Influence of sign value is more prominent for destination-focused advertisements. Consumers planning leisure travel see themselves as passengers rather than being tourists, meaning price-related characteristics are their primary concern.     

Investigating business traveller heterogeneity: Low-cost vs full-service airline users?

This paper investigates business traveller heterogeneity using data from a survey carried out amongst airline passengers. Traditional methods employed are usually based on mean responses, thus providing an incomplete picture of what business travellers perceive to be the main sources of differentiation in the airline industry. Factor analysis was used to find types of travellers through grouping of preferred attributes. Then, ordered discrete response methods were used to assess which attributes are perceived in a different way by the two types of travellers identified by factor analysis, controlling for route and passenger characteristics. The results show that a substantial portion of business travellers, who previously did not fly for business reasons, use low-cost air services. Furthermore, after having experienced the low-cost product, business passengers tend to reassess the valuation of some attributes in a way which is more favourable to the LCC. Hence, we conclude that LCC marketing strategies should be aimed at getting business travellers to experience the low-cost product.     

Low-cost airlines,secondary airports,and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement

This paper builds a vertical differentiation model to analyse the effects of subsidies, or lower aeronautical charges, for secondary airports on competition between low cost and full scheduled carriers. The Ryanair–Charleroi Airport agreement in Europe is used as an example and as a basis for the model. The main findings are that subsidization or lower airport charges benefit consumers and negatively affect incumbent airlines. However, they may be more affected by competition than by the subsidy. An empirical analysis provides a few insights on the influence of dominating airports in Ryanair fares. We conclude that this airline sets lower fares when flights depart from or arrive at dominated airports.     

Living “up in the air”: Meeting the frequent flyer passenger

This paper uses a large database of approximately 37,000 passengers and three different estimates to analyse the characteristics of the frequent flyer and the differences between frequent flyers and occasional flyers. The results show that frequent flyers are middle-aged men with a high level of education who take domestic flights for business reasons at both hub and regional airports, where they make a purchase and/or consume F&B. Frequent flyers fly on both low-cost and traditional airlines, are more likely to stay overnight at a relative's or friend's home and travel to the airport by private or rented car.     

The relationship between on-time performance and airline market share: a new approach

We propose a new method of modeling the relationship between on-time performance and market share in the airline industry. The idea behind the method is that the passengers’ decision to remain (use same airline) or switch (use other airlines) at time t depends on whether they have experienced flight delays at time t−1 or not. More specifically, we posit that the passengers who experienced flight delays are more likely to switch airlines for the subsequent flight than those passengers who did not experience delays. To capture such effect, we develop an aggregate-level Markovian type model that estimates the transition probability matrices separately for the passengers who experienced flight delays at time t−1 and for those who did not experience delays. The model was calibrated with the US DOT data. The study results imply that, once experiencing flight delays, passengers are more likely to switch airlines. The results also imply that on-time performance affects a carrier’s market share primarily through the passengers’ experience, and not though the “advertisement” of performance.