Low cost carriers and foreign tourism inflows: A cointegrated VAR analysis for Italy

This paper seeks to quantify the impact of the expansion of LCC on foreign tourism trends in Italy. We rely on a novel data set on the seats on flights by low cost carriers between foreign destinations and each Italian airport. Cointegrated vector autoregressive models are estimated for both Italy and its main geographical areas. A single equilibrium relation is uncovered, relating the level of LCC travel supply to the dynamics of the global business cycle, of relative consumer prices and of foreign tourist expenditure. According to our structural impulse response analysis, a positive shock to LCC travel supply determines an increase in Italy both for foreign tourist expenditure and for arrivals. The estimated response for per capita expenditure is positive at national level, but negative for two of the four macro regions. These findings suggest that focusing on arrival statistics may provide a partial view of the impact of LCC supply policies.