The demand for low-cost carriers: an empirical micro analysis

The demand for low-cost carriers: an empirical micro
analysis
Juan Muro, Cristina Suárez and María del Mar Zamora
Universidad de Alcalá
Dpto. Estadística, Estructura Económica y O.E.I.
Plza. de la Victoria, 2
28.802 Alcalá de Henares (Madrid)
e-mail: juan.muro@uah.es, cristina.suarez@uah.es,
mariam.zamora@uah.es
Abstract:
In Europe low-cost carriers (LCC) is a fast growing industry. We empirically
investigate the microeconomic determinants of the demand for LCC, a subject
we know very little about. We adopt a reduced form demand for transportation
model, extended to incorporate possible selectivity biases stemming from
interactions between unobserved individual heterogeneity associated with
specific transportation choice. The model is estimated using a very rich dataset
from EGATUR (Encuesta de Gasto Turístico), the Spanish Foreign Tourist
Expenditure Survey. The sample allows us to explore the influence of price and
income related variables as well as personal characteristics on LCC’s demand.
Price and income results are consistent with theory. Unobserved individual
heterogeneity linked with travelling by air, as opposite to road travel, is
significantly and inversely correlated to unobserved individual heterogeneity
related with travelling by air with a LCC, as contrary to full service airline travel,
reflecting travel choice interdependence through unobservables. This primary
attempt to apply selectivity models in investigating LCC’s demand offers insights
and raises new empirical and theoretical questions.
keywords: Demand for transportation, low-cost carriers, binary choice model
with selectivity, individual unobserved heterogeneity, models with many
qualitative variables.
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