Estimating Strategic Responses to the March of a Low Cost Carrier to Primary Airports

We empirically investigate the capacity adjustments of major incumbent airlines facing the entry of a new low cost carrier in a secondary airport of a multiple airports region. We examine the effects of the threat of product repositioning constituted by the newcomer migrating operations to adjacent airport-pairs within city-pair markets. We develop an empirical model that allows for time-varying strategic responses, aiming at identifying possible degrees of route entry threat. We consider the case of the entry of Azul Airlines in the densest conurbation in Brazil. Our results suggest that the incumbents preemptively fortified their flight frequency positions on threatened routes to deter the anticipated march of the newcomer from the secondary airport toward the existing primary airports