Tuesday, September 27, 2011

The Construction of a Low Cost Airline Network

Posted by D. Daniel Sokol

Kathrin Mueller, Centre for European Economic Research (ZEW), Volodymyr Bilotkach, University of California, Irvine - Department of Economics, and Kai Huschelrath, Centre for European Economic Research (ZEW) discuss The Construction of a Low Cost Airline Network.

ABSTRACT: The paper investigates the construction of a low cost airline network by analyzing JetBlue Airways' entry decisions into nonstop domestic U.S. airport - pair markets between 2000 and 2009. Adopting duration models with time-varying covariates, we find that JetBlue consistently avoided concentrated airports and targeted concentrated routes; network economies also affected entry positively. For non-stop entry into a route that has not been served on a non-stop basis before, our analysis reveals that the carrier focused on thicker routes and secondary airports, thereby avoiding direct confrontation with network carriers. Non-stop entry into existing non-stop markets, however, shows that JetBlue concentrated on longer-haul markets and avoided routes already operated by either other low cost carriers or network carriers under bankruptcy protection.


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