Abstract
The paper examines the impact of low-cost carrier Pegasus Airlines’ entry on Turkish Airlines’ yields in domestic and international routes. We find that Turkish Airlines’ yields are lower in both types of routes in response to entry. Moreover, the LCC entry affects domestic routes substantially more than international routes. Due to lower fares and heightened competition, the number of passengers has more than quadrupled in the last decade. Hence, we argue that Pegasus entry has been instrumental in transforming the Turkish Airline industry, which has become more dynamically competitive recently.
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Notes
To our knowledge, Oliveira and Huse (2008) investigating price reactions to the entry of the low-cost carrier Gol Airlines in the Brazilian domestic market in 2001 is the only study on low cost carrier competition in a developing country context.
This section is based on Dursun et al. (2014) in which a detailed overview of the Turkish airline industry is provided.
Our methodology is similar to Goolsbee and Syverson (2008) and Aydemir (2012) where they look at 25-quarter window and 13-quarter window, respectively. However, due to data unavailability, in the earlier version of the paper we considered a relatively modest 13-month window to be able to study as many markets as possible that satisfy the criteria below. One of the referees suggested that a 13-month window is appropriate for international markets but that we should extend the window size for domestic markets. After checking for robustness, we find that the suggestion turns out to be right. Hence, following the advice, we look at 19-month and 13-month windows for the domestic and international markets, respectively, in the current version of the paper. Note that we lose one market from the domestic markets sample by extending the window size from thirteen to nineteen.
The empirical specification is similar to Aydemir (2012) who focus on the effects of actual and potential competition in the US airline industry. Here, we analyze only actual competition due to unavailability of data. In the international markets analysis, we exclude the first three before entry and the last three after entry dummies from the specification (1) to look at 13-month window (six months before and six months after entry).
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Acknowledgments
The views expressed in this paper are those of the authors and do not necessarily reflect the views of Turkish Airlines. We thank to the editor, Peter Rangazas and the referees for their valuable comments and recommendations.
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Appendix: Robustness checks
Appendix: Robustness checks
1.1 Domestic markets
1.2 International markets
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Aydemir, R., Haytural, C. The effects of low cost carrier entry in the Turkish Airline industry. Eurasian Econ Rev 6, 111–124 (2016). https://doi.org/10.1007/s40822-015-0039-0
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DOI: https://doi.org/10.1007/s40822-015-0039-0