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An empirical evaluation of the effects of European public policies on island airfares

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  • Fageda, Xavier
  • Jiménez, Juan Luis
  • Valido, Jorge

Abstract

In this paper we estimate a pricing equation using data, at route and airline levels, for five European countries where a significant proportion of the territory is located on islands; France, Greece, Italy, Portugal and Spain. By using two complementary empirical strategies, instrumental variables and matching procedures, we find that the imposition of Public Service Obligations does not seem to be effective in reducing prices. Furthermore, we find that prices are higher on routes where only island residents enjoy subsidies, but not on routes where subsidies do not discriminate between residents and non-residents. Finally, prices seem to be higher on routes with flat rates in contrast to routes where subsidies to residents are made through fare discounts. Overall, the results of our analysis suggest the need to change policies in order to support air services to islands and to avoid distortions in the market fares offered by airlines.

Suggested Citation

  • Fageda, Xavier & Jiménez, Juan Luis & Valido, Jorge, 2017. "An empirical evaluation of the effects of European public policies on island airfares," Transportation Research Part A: Policy and Practice, Elsevier, vol. 106(C), pages 288-299.
    • Handle: RePEc:eee:transa:v:106:y:2017:i:c:p:288-299
    DOI: 10.1016/j.tra.2017.09.018
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    More about this item

    Keywords

    Airline; Subsidies; Resident passenger;
    All these keywords.

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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