Impact of low-cost carrier exit on tourism revenues

Article

He, Yulu, Wu, Hanjun, Tsui, Kan Wai Hong, Wang, Kun and Fu, Xiaowen. 2026. "Impact of low-cost carrier exit on tourism revenues." Annals of Tourism Research. 116. https://doi.org/10.1016/j.annals.2025.104071
Article Title

Impact of low-cost carrier exit on tourism revenues

ERA Journal ID19645
Article CategoryArticle
AuthorsHe, Yulu, Wu, Hanjun, Tsui, Kan Wai Hong, Wang, Kun and Fu, Xiaowen
Journal TitleAnnals of Tourism Research
Journal Citation116
Article Number104071
Number of Pages15
Year2026
PublisherElsevier
Place of PublicationUnited Kingdom
ISSN0160-7383
1873-7722
Digital Object Identifier (DOI)https://doi.org/10.1016/j.annals.2025.104071
Web Address (URL)https://www.sciencedirect.com/science/article/pii/S016073832500177X
Abstract

A low-cost carrier withdrawal triggers the airline substitution effect as remaining full-service carriers raise fares, reducing tourism revenues. Meanwhile, a transport mode shift to ground transportation may boost local spending and generate additional regional tourism revenues. This study uses a unique difference-in-differences framework to assess the net impact of low-cost carrier withdrawal from New Zealand's regional markets. Findings reveal the “airline substitution effect” outweighs the “transport mode shift”, causing a net tourism revenue drop after a low-cost carrier exit. Policy implications suggest prioritising low-cost carrier retention through targeted subsidies and support to enhance regional tourism and economic growth.

KeywordsAirline substitution effect; Domestic tourism revenues; Low-cost carrier withdrawal; Difference-in-differences; Transport mode change effect
ANZSRC Field of Research 2020350901. Air transportation and freight services
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Byline AffiliationsHong Kong Polytechnic University, China
Massey University, New Zealand
School of Business, Law, Humanities and Pathways - Business
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