The U.S. Airline Industry In 1995

Market Entry and the Evolution of the U.S. Airline Industry 1995-2009
Kai Hüschelrath and Kathrin Müller ZEW Centre for European Economic Research, Mannheim

GARS Workshop - New Issues in AviationEconomics Hamburg, February, 9th 2011

Agenda
1. 2. 3. 4. Motivation and introduction Recent market developments from 1995-2009 Patterns and effects of market entry Conclusions and outlookMotivation and introduction
• Undisputed importance of market entry for competition and innovation • U.S. airline industry as prime example
– Deregulation of the industry in 1978 – Appearance andgrowth of low cost airlines

• Paper provides an extensive descriptive analysis on the evolution of the U.S. airline industry since 1995

Size and players

Size and Players (cont.)

• LCC share12.7% (1995) and 29.8% (2009)

Entry into non-stop airport pairs

Entry into non-stop airport pairs (cont.)

LCC entries by distance

General effects of route entry on average fares anddepartures (LCC)

General effects of route entry on average fares and departures (NWC)

The case of JetBlue Airlines

JetBlue Airlines – Entry JFK:ROC

Welfare effects – JFK:ROC
•S=QM*(PM-PD) Savings effect • E=0.5 [(QD-QM)*(PM-PD)] Expansion effect • CWE = S + E Total consumer welfare effect

Summary and Conclusions
Substantial industry growth from 1995 and 2009 LCC substantiallyincreased their overall passenger share Significant entry activity for both NWC and LCC Entry by a LCC on average leads to a significant decrease in market yield • B6 entry in JFK:ROC: CWE of about $8million in the year after entry Conclusions • Appearance and growth of LCC surely is one of the most important developments in the deregulation era of the U.S. airline industry. • Competitionauthorities: Closely monitor the industry and intervene in cases of emergence of strategic entry barriers built by NWC. What‘s next? • Analyzing the determinants and effects of entries into new and...