Entry pattern of low-cost carriers in New Zealand - the impact of domestic and trans-Tasman market factors

Abstract

This study empirically examines the route entry decision of Jetstar NZ, a low-cost carrier (LCC), in New Zealand's duopolistic domestic aviation market between 2010 and 2016. The estimation controls for route characteristics, airline spatial network, and airline competition variables in both New Zealand's domestic market and the adjacent trans-Tasman markets linking Australia and New Zealand. The empirical results suggest that the favorable regional socioeconomic and tourism factors helped Jetstar NZ launch its service into a route. The LCC's entry decisions on domestic routes are not sensitive to airline competition within the same market but are influenced by the carrier's own operation and airline competition in the international Tasman market. Our study suggests that there are different sources of network effects for LCCs operating point-to-point travel demands. The “airline-in-airline” (AinA) strategy allows airlines (Jetstar and Qantas) within the same group to achieve certain synergy and competition benefits, but certain network effects can only be obtained between the same types of carriers. We also find preliminary evidence of spill-over effects, through which international liberalization influences competition in the domestic market.