Quantifying the net impact and redistribution effects of airlines’ exits on passenger traffic

Abstract

This paper studies the impact of airlines’ exits on passenger traffic. In this regard, univariate and multivariate structural time series have been applied. They have proved useful to quantify the net impact on passenger traffic and redistribution effects among incumbent airlines. As an application, a natural experiment is studied, in which two relevant airlines filed for bankruptcy in different periods. In the first, policymakers employed a laissez faire strategy, whereas in the second, they applied an incentive scheme programme. The programme was based on the support of destination promotion, tax and tariff discounts. Overall, the paper shows that under laissez faire, the incumbent airlines did not take over the passenger traffic left by the airline that exited the route. However, in the second case, following approval of the incentive scheme, the loss of passengers was mitigated by the incumbent airlines.