How does COVID-19 pandemic affect airline’s route choice and market contact? − Full-service carriers vs. low-cost carriers in China

Abstract

We empirically examine the impact of the COVID-19 pandemic on airlines’ route choices and market contact based on the Chinese domestic market over the period 2019–2022. An airline route choice model is estimated for both full-service carriers (FSCs) and Spring Airlines, China’s largest and most representative low-cost carriers (LCCs), which disentangles the “attenuating” and “persistent” effects of the pandemic on airlines’ route choices. The former effect refers to airlines exiting from extant routes in response to the sudden decline in air travel demand and strict pandemic controls, while the latter effect reflects airlines’ relatively long-term adjustment of their competition strategy triggered by the pandemic. Our empirical findings are as follows: The pandemic had a positive “persistent effect” and a negative “attenuating effect” on Spring Airlines. Spring Airlines has actively expanded its network to all types of routes, especially the dense routes connected to major airports. FSCs also adjusted their route entry strategy by entering more thin routes connected to secondary cities (i.e., a positive “persistent effect”). The pandemic has broken the equilibrium of network differentiation between FSCs and Spring Airlines in China. Spring Airlines has begun expanding services at FSCs’ major hub airports. FSCs have also tried to serve more lucrative niche routes that were previously monopolized by Spring Airlines. Overall, we observe more frequent market contact and increasing head-to-head competition between FSCs and Spring Airlines during the pandemic, when the overall traffic volume has rebounded to the pre-pandemic level. This is probably because of the airlines’ desperate need for cash flow amid financial difficulties, forcing them to intensify competition. This could have also been facilitated by more idle aircraft/airport slot capacities reallocated from the international market to the domestic market during the pandemic.