Low-cost Carriers, Local Economy and Tourism Development at Four Portuguese Airports. A Model of Cost-benefit Analysis

The liberalisation of air transport created a new era in the sector. The entry of low-cost carriers triggered dynamism and consequently changed the behaviours of the demand and supply of air transport services. The volume of traffic at Portuguese airports increased from 17 million passengers in 2002 to more than 30 million in 2012, representing cumulative growth of 75%. The commitment to low-cost carriers (LCCs) was a determining factor for this growth in that, in 2012, these carriers recorded a market share of 33%. This study aims to analyse the evolution of LCC air traffic in Portugal and its impact on regional economic development. Through a model of cost–benefit analysis, we determine the costs, benefits and net welfare in the developmet of the region driven by the LCC routes of 4 Portuguese airports, Faro, Lisbon, Funchal and Porto, between 2005 and 2012. The methodology proves the existence of a positive net impact driven by LCCs on the local economy, directly through job creation and increased consumption in the tourism sector and indirectly by the increased demand from other sectors.