Abstract:

Subsidiesto LCCs are a policy tool used by various Italian regions to stimulate touristflows. Using a structural model to determine the equilibrium in the airtransport market, it is possible to determine the effects of subsidies onpassengers and, through a calibration model, on regional tourist flows. Thework analyzes data on air transport and tourist flows from Europe to theItalian regions in the period 2016-18. Counterfactual analysis identifies thata subsidy application model in which each region acts independently is lesseffective than a cooperative one between regions. In details, we find thatincreasing the LCCs subsidies in all regions by 1€ (on average +1.7%) willincrease passengers by 1.83%, with a +3.33% for LCCs and a -1.19% for fullservice carriers (FSCs); these figures translate in a +0.58% in tourist in allItalian regions. If instead each region applies the subsidy independently, theimpact on tourist is smaller, and equal to +0.05%. Hence, we have two policyimplications: (1) subsidies are effective on tourism but a coordinated approachhas a greater impact; (2) they generate an effective competitive advantage forLCCs.   

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