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Pricing strategies of low-cost airlines: The Ryanair case study

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  • Malighetti, Paolo
  • Paleari, Stefano
  • Redondi, Renato
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    Abstract

    We analyse the pricing policy adopted by Ryanair, the main low-cost carrier in Europe. Based on a year's fare data for all of Ryanair's European flights, using a family of hyperbolic price functions, the optimal pricing curve for each route is estimated. The analysis shows a positive correlation between the average fare for each route and its length, the frequency of flights operating on that route, and the percentage of fully booked flights. As the share of seats offered by the carrier at the departure and destination airports increases, fares tend to decrease. The correlation of dynamic pricing to route length and the frequency of flights is negative. Conversely, as competition increases discounts on advance fares rise.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0969699708001221
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Air Transport Management.

    Volume (Year): 15 (2009)
    Issue (Month): 4 ()
    Pages: 195-203

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    Handle: RePEc:eee:jaitra:v:15:y:2009:i:4:p:195-203

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    Web page: http://www.journals.elsevier.com/journal-of-air-transport-management/

    Related research

    Keywords: Dynamic pricing; Low-cost; Ryanair; Fares;

    References

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    1. Wilson, Charles A, 1988. "On the Optimal Pricing Policy of a Monopolist," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 164-76, February.
    2. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    3. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    4. Pels, Eric & Rietveld, Piet, 2004. "Airline pricing behaviour in the London–Paris market," Journal of Air Transport Management, Elsevier, vol. 10(4), pages 277-281.
    5. Gudmundsson, Sveinn Vidar, 2004. "Management emphasis and performance in the airline industry: an exploratory multilevel analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(6), pages 443-463, November.
    6. Anjos, Miguel F. & Cheng, Russell C. H. & Currie, Christine S. M., 2005. "Optimal pricing policies for perishable products," European Journal of Operational Research, Elsevier, vol. 166(1), pages 246-254, October.
    7. Wen Zhao & Yu-Sheng Zheng, 2000. "Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand," Management Science, INFORMS, vol. 46(3), pages 375-388, March.
    8. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
    9. Franke, Markus, 2004. "Competition between network carriers and low-cost carriers—retreat battle or breakthrough to a new level of efficiency?," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 15-21.
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    Cited by:
    1. Chang, Li-Yen & Hung, Shao-Chih, 2013. "Adoption and loyalty toward low cost carriers: The case of Taipei–Singapore passengers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 50(C), pages 29-36.
    2. Ofelia Betancor & Juan Luis Jiménez, 2011. "When trains go faster than planes: the strategic reaction of airlines in Spain," ERSA conference papers ersa11p295, European Regional Science Association.
    3. Maertens, Sven, 2011. "The market potential of all-premium class services on medium haul leisure routes from Germany," Journal of Air Transport Management, Elsevier, vol. 17(3), pages 181-186.
    4. Escobari, Diego, 2014. "Estimating dynamic demand for airlines," Economics Letters, Elsevier, vol. 124(1), pages 26-29.

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