Rivalry Amongst European Low Cost Airlines: Are Shareholders Enjoying the Game?

Journal of Air Transport Management, Forthcoming

Posted: 29 Mar 2010

See all articles by Carlos F. Alves

Carlos F. Alves

University of Porto - Faculty of Economics

Cristina Barbot

University of Porto

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

Alves, Carlos Francisco Ferreira and Barbot, Cristina, Rivalry Amongst European Low Cost Airlines: Are Shareholders Enjoying the Game? (March 24, 2009). Journal of Air Transport Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1577552

Carlos Francisco Ferreira Alves (Contact Author)

University of Porto - Faculty of Economics ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal
+351 225571242 (Phone)
+351 225505050 (Fax)

Cristina Barbot

University of Porto ( email )

Rua Dr. Roberto Frias
4200-464 Porto
Portugal

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