Rivalry Amongst European Low Cost Airlines: Are Shareholders Enjoying the Game?
Journal of Air Transport Management, Forthcoming
Posted: 29 Mar 2010
Date Written: March 24, 2009
Abstract
We develop a model of quantity and price competition through announcements of new routes and their impacts on the announcer and on its rival. We find that both shares prices may register a rise or a fall as a result of an announcement of new routes, depending, for the announcer, on launching costs, and, for the rival, on which effect (market expansion or market substitution) is dominating. We present an empirical study for two European low cost airlines that evidences an asymmetric behaviour. While EasyJet’s announcements have positive effects on rival share value, the announcements of Ryanair’s as no such effect. This suggests that different reputation of airlines is valued by shareholders and becomes an important determinant of the impact of announcements on the rival’s share price.
Keywords: rivalry, reputation, airlines, new products announcements, stock market reaction
JEL Classification: L13
Suggested Citation: Suggested Citation