The successful emergence of Low Cost Carriers (LCCs) is one of the most important structural developments in the airline industry occurring after 1978 airline deregulation.  By 2006, the LCCs served one third (32.9%) of all domestic origin and destination passengers, and about three-fourths of all domestic passengers had access to LCC service. The competitive effects of LCCs are not limited to air routes and fares, but may also impact stock valuation of traditional carriers. The oligopoly structure, barriers to entry, and high fixed costs of the airline industry make it highly susceptible to LCC entry, so the airline industry represents a contestable oligopoly. This research presents an event study analysis of LCC entry into the hub or major market airports of the traditional airlines.  Our sample consists of the announcement and entry data into airline markets, derived from U.S. Department of Transportation, Bureau of Transportation Statistics (BTS).  Second, the CRSP database is utilized to determine daily returns of airline stock values.  We utilize an event study methodology, common in financial economics, based on the efficient markets hypothesis, to examine patterns of daily stock returns immediately surrounding the event of interest.  Then we use two-stage regression to test the relation between CAR and stock characteristics, market returns, and macroeconomic variables as regressors.  Stock characteristics are trading volume, market capitalization, and change in average daily spread. We find that all AR for LCC entry are positive and both CAR are significant. For 0.05 statistical significance, CAR for day following announcement and both AR and CAR of day after entry differ significantly from zero.  Overall, this analysis produces some unexpected results; significant positive abnormal stock returns are observed.  These effects of LCC entry may be explained either by the more critical importance of other variables or, more likely, by the positive network externalities, or economies of scope, seen as increased passengers and connectivity increase the enplanements and/or revenues of the traditional national airlines.  The results reveal that investors could consider LLC entry as a marginal event in terms of anticipated effects on the revenues of traditional airlines.  Alternately, the entry of an LCC into the market of an established airline may enhance the position of the traditional carrier by producing positive economic externalities, achieved through economies of scope with aggregation and enhancement of transportation opportunities in the airport area. If a new LCC enters an airport, it may increase the air traffic and connections between open routes of major airlines and increase the number of passengers into the airport where no connection had existed.  Adding connections is akin to adding more spokes in the hub and spoke business model.  Or the LCC entry may connect more people to that airport, even if an established carrier previously served the same city-pair. Thus, an LCC entry may increase revenues and enplanements of the network carriers by providing more connecting customers and fulfil an objective of the hub-and-spoke system. As a result, stock prices of the traditional airlines would increase rather than decrease.