Low-Cost carriers and airports' performance: Empirical evidence from a panel of UK airports

During the past decade, the proliferation of low-cost carriers (LCCs) and the related huge increase in traffic has been the most visible effect of the deregulation of the airline market in Europe. Little attention has been paid to how airports were affected by the changes in the new institutional environment. In this study, we model the total factor productivity (TFP) for a panel of the largest airports in the UK over the 2002-2005 period and investigate whether the presence of LCCs had some impact on airports' TFP. Empirical results are consistent with the hypothesis that conspicuous entry of LCCs on European markets has impacted positively on the vertical chain by facilitating airports' productivity improvements. This result is robust to reverse causality issues associated with the possibility that the most efficient airports are those that are more likely to attract LCCs. Different possible arguments may explain our results: traffic increases brought about by LCCs for a given installed capacity might have generated higher TFP; more efficient organizational models might have been adopted to meet LCCs operational requirements (short turnaround times); cost reductions might have been realized to lower charges and attract LCCs; and competition from a larger number of airports induced by LCCs' wider catchment areas (with respect to full service airlines) might have exerted further pressure toward TFP improvements.