A recent academic investigation has raised renewed concerns about the economic vulnerability of regional tourism sectors when affordable air travel options disappear. As debates intensify globally about the sustainability of regional aviation and the future of budget airlines, a new study has delivered one of the clearest quantitative assessments to date: when low-cost carriers (LCCs) withdraw from regional routes, tourism revenues decline in a measurable and significant way.
The study, titled “Impact of low-cost carrier exit on tourism revenues,” was conducted by He Yulu, Wu Hanjun, Tsui Kan Wai Hong, Wang Kun, and Fu Xiaowen. It is published in the journal Annals of Tourism Research, Volume 116, scheduled for 2026. The authors focus on New Zealand’s domestic aviation landscape to examine what happens to local economies when an LCC pulls out of regional markets.
Using a quasi-experimental difference-in-differences framework, the researchers compared regions affected by the exit of a low-cost carrier with regions that had no such exposure, while also comparing each region before and after the withdrawal. This allowed them to isolate the “causal effect” of LCC service termination on tourism outcomes — something previous literature has rarely captured with precision.
Their findings reveal a dynamic interplay of two opposing forces. The first, which the researchers term the airline substitution effect, occurs when the departure of a budget airline leaves only full-service carriers operating on the route. With competition reduced, these carriers tend to raise fares, resulting in fewer travelers choosing to fly. This decline in air arrivals leads directly to reduced spending on accommodations, restaurants, attractions, transport, and other tourism-related services.
Positive Effect Low Cost Carriers
The second force, described as the transport mode change effect, captures the behavior of travelers who decide to switch from air travel to land-based transport such as cars or buses. In theory, this shift could help offset some of the losses caused by reduced air traffic, as overland travelers might still spend money in local economies.
However, the study’s authors emphasize that the positive effects of mode switching are not sufficient to counterbalance the economic losses caused by the airline substitution effect. According to their analysis, the reduction in competition — and corresponding rise in airfare — exerts a much stronger downward pull on tourism revenue than any compensatory gains from land-based travel.
“Our data show that the exit of a low-cost carrier has a clear and negative impact on tourism revenues,” Yulu He, the lead researchers from Hong Kong Polytechnic University explain. “While some travelers do switch to alternative modes of transport, the increase in their spending does not make up for the much larger loss in air-based tourism activity.”
In commentary included in the report, the research team adds that the influence of LCCs extends beyond cheaper fares alone. “Low-cost carriers play a structural role in sustaining tourism flows,” they state. “Their presence lowers barriers for travel. When these carriers withdraw, regional accessibility declines sharply, and the shock to local tourism economies can be immediate and significant.”
The authors also argue that policymakers often underestimate the economic risks associated with LCC withdrawal. In regions where tourism is a primary economic driver, a loss of direct flight connections can create ripple effects that extend far beyond immediate tourism spending. These include reduced employment in hospitality and transport sectors, diminished investment attractiveness, and long-term challenges in rebuilding visitor confidence.
Consider Strategic Interventions
The findings of this study carry implications far beyond New Zealand. Many countries with geographically dispersed populations — including Indonesia, the Philippines, Japan, Australia, and the United States — rely heavily on low-cost carriers to connect regional cities with major hubs. In such contexts, LCC exits could have outsized effects on regional development.
In their concluding remarks, the authors urge governments and regulatory bodies to consider strategic interventions to maintain the viability of regional LCC routes. They suggest measures such as targeted subsidies, operational incentives, or collaborative arrangements to ensure that remote or smaller regions do not become cut off from national tourism flows.
“Low-cost carriers serve as a lifeline for regional tourism,” Yulu He note. “Ensuring their sustained presence can be vital for maintaining economic resilience, particularly in areas that depend heavily on visitor spending.”
As global tourism continues to recover and reshape itself after years of disruption, the study’s insights provide timely evidence that access to affordable air travel remains a critical pillar of regional economic health. For policymakers, tourism operators, and communities alike, the message is clear: protecting low-cost air connectivity may be essential to safeguarding the future of local tourism economies. (Wage Erlangga)
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