How do subsidiary low-cost carriers affect Chinese airline market? Route entry pattern and competitive impacts

In recent years, Chinese full-service carriers (FSCs) have increasingly adopted the “airline-within-airline” (AinA) strategy by establishing low-cost carrier (LCC) subsidiaries. This study examines the impact of these established subsidiary LCCs in China, focusing on their route-entry patterns and competitive effects on the Big Four FSCs and the overall aviation market equilibrium. We first use descriptive statistics to provide an overview of China's LCC sector, with particular emphasis on the evolution of subsidiary LCCs. We then apply econometric models to empirically examine both the route entry patterns and the competitive effects of these subsidiary LCCs. The results reveal that Chinese subsidiary LCCs exhibit distinct features that differ from their international counterparts. (1) With respect to route-entry patterns, contrary to the patterns documented in many international markets, most subsidiary LCCs are inclined to enter routes with high-speed rail (HSR) competition and dense traffic. At the same time, they tend to avoid routes involving highly concentrated airports. There is no evidence to suggest that subsidiary LCCs support market expansion for their parent airlines in China. (2) With respect to competitive impacts, contrary to practices observed in other countries, Chinese subsidiary LCCs are not deployed as a strategic tool to compete against rival LCCs mainly because they exhibit only limited overlap in their route networks. Earlier-formed subsidiary LCCs do not appear to exert statistically significant downward pressure on their parent airlines’ yields, whereas later entrant (Lucky Air) is associated with more noticeable yield reductions for the parent airlines. (3) At the route level, subsidiary LCCs are effective in stimulating passenger demand and reducing market fares, although the magnitude of these effects is substantially smaller compared to their international counterparts. Overall, this empirical study provides valuable insights and policy implications for sustainable AinA development in China and offers useful references for other emerging airline markets.