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The Impact of Passenger Mix on Reported “Hub Premiums” in the U.S. Airline Industry

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Author Info

  • Darin Lee

    ()
    (LECG, LLC)

  • María José Luengo-Prado

    ()
    (Department of Economics, Northeastern University)

Abstract

This paper analyzes U.S. airline price and passenger data disaggregated at the fare class level for the year 2000. We find that although average prices to and from most airlines' hubs tend to be higher than those throughout the remainder of their systems, much of the difference can be explained by passenger mix (i.e., the proportion of leisure versus business passengers). Our results suggest, therefore, that many of the reported “hub premiums” in the previous literature may be overstated.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 72 (2005)
Issue (Month): 2 (October)
Pages: 372–394

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Handle: RePEc:sej:ancoec:v:72:2:y:2005:p:372-394

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Cited by:
  1. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics.
  2. Bilotkach, Volodymyr & Lakew, Paulos Ashebir, 2014. "On sources of market power in the airline industry: Panel data evidence from the US airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 288-305.
  3. Ciliberto, Federico & Williams, Jonathan, 2009. "Limited Access to Airport Facilities and Market Power in the Airline Industry," MPRA Paper 24889, University Library of Munich, Germany.
  4. Starkie, David, 2012. "European airports and airlines: Evolving relationships and the regulatory implications," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 40-49.
  5. Fu, Xiaowen & Homsombat, Winai & Oum, Tae H., 2011. "Airport–airline vertical relationships, their effects and regulatory policy implications," Journal of Air Transport Management, Elsevier, vol. 17(6), pages 347-353.
  6. Bilotkach, Volodymyr & Gorodnichenko, Yuriy & Talavera, Oleksandr, 2010. "Are airlines' price-setting strategies different?," Journal of Air Transport Management, Elsevier, vol. 16(1), pages 1-6.
  7. Brueckner, Jan K. & Lee, Darin & Singer, Ethan S., 2013. "Airline competition and domestic US airfares: A comprehensivereappraisal," Economics of Transportation, Elsevier, vol. 2(1), pages 1-17.
  8. Yahua Zhang & David Round, 2009. "Policy Implications of the Effects of Concentration and Multimarket Contact in China’s Airline Market," Review of Industrial Organization, Springer, vol. 34(4), pages 307-326, June.
  9. Obeng, K., 2008. "Airline daily fare differentiation in a medium-size travel market," Journal of Air Transport Management, Elsevier, vol. 14(4), pages 168-174.
  10. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics.
  11. Zhang, Shengrun & Derudder, Ben & Witlox, Frank, 2013. "The impact of hub hierarchy and market competition on airfare pricing in US hub-to-hub markets," Journal of Air Transport Management, Elsevier, vol. 32(C), pages 65-70.
  12. Bar, Michael & Chernomaz, Kirill & Diego, Escobari, 2010. "Pricing and travelers' decision to use frequent flyer miles: evidence from the U.S. airline industry," MPRA Paper 32201, University Library of Munich, Germany.

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