Impact of low-cost carrier exit on tourism revenues

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.