Have Low-Cost Carriers Crowded Out Full Services and Charter Carriers in Tourism Destinations? A Trivariate Structural Time Series Analysis

Abstract

Long-haul tourist arrivals depend on the airline market, its size, and the degree of competition. This article studies the entry and exit of full service carriers (FSCs), charter carriers (CCs) and low-cost carriers (LCCs) from two origins: the United Kingdom and Germany, and five sun-and-beach destinations in Spain. The relationship among all types of airlines is captured with a trivariate structural time series model to disentangle the airlines’ responses under common shocks of airlines’ entry and/or exit and provides estimates of immediate responses and indicators of responses over time. The results show that in the British market, the entry of LCCs has crowded out FSCs and CCs. However, in the German market, the results are heterogeneous and overall do not support the existence of such crowding out effect.