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Abstract
Passenger airline service can have a significant impact on a metropolitan region’s economy in
terms of direct spending and employment, as well as on indirect spending related to industries
such as tourism and the service sector. In the past decade passenger service levels have
changed considerably in many markets due to a wide variety of events including increased
competition, terrorism, and a downturn in the economy. Airlines have responded to these
challenges in a variety of ways. Some of the traditional network carriers have been forced into
bankruptcy in an attempt to reduce their costs and compete more effectively with the low cost
carriers. In contrast, the low cost carriers have expanded service and enter new markets at a
rapid pace.
This paper examines the economic evolutionary process whereby a dominant carrier competes
intensely in one market against a similar airline and retreats in another where new, lower cost
entrants expand service. The relevant literature is examined for evidence pertaining to the
market’s response to a network carrier’s financial distress, its impact on airport service levels,
and implications on local economies. A zero sum case is explained using a recent example. A
positive sum case is explored, where the positive contributions of the entering carrier exceed
those left behind by the resident carrier. In the process, depending on the types of gains and
nature of evolving airlines network, the patterns of air traffic may also change. Using these
experiences, an analytical framework is proposed that attempts to explain the emergent
behavior of low cost carriers when they enter new markets. In addition, the impact of these
changes on the air traffic management system is also examined.