Market stimulation of new airline routes
This paper considers to what extent the introduction of a new air route leads to additional market stimulation. If no direct air route between two airports exists, passengers have to fly indirectly or find other routings or alternative modalities. In addition, people refrain from travelling between two airports in the absence of a direct air service. The main goal of this paper is to estimate the relation between the market size before the introduction of a new route and the factor that the original market size increases by, following the addition of the direct service (the market stimulation factor). Using passenger booking data from 2005 to 2015, we identified 5157 new routes that were introduced from Europe to various domestic, European and intercontinental destinations. Using a log-transformed linear regression model, we find that the market stimulation factor is inversely proportional to the original market size. Our results indicate that stimulation factors vary between 9.1 for small routes (2,500 indirect air passengers per year) and 1.3 for larger routes (50,000 indirect air passengers per year). Moreover, we find that market stimulation is 28-36% larger for low cost carriers than for full service carriers.
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