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Ability to Recover Full Costs through Price Discrimination in Deregulated Scheduled Air Transport Markets

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  • Kenneth Button
  • Alvaro Costa
  • Carlos Cruz

Abstract

The regulatory reforms of domestic airline markets and regional markets such as the Europe Economic Area and the increased number of Open Skies agreements have led to a move away from the administrative structure of fare setting to one dominated by market forces. Within this latter framework the initial market power and price leadership exercised by former flag carriers and charter airlines is gradually being eroded by the emergence of low‐cost carriers among other factors. A major problem encountered in supplying pre‐committed scheduled services in a competitive market is that of full cost recovery. It has been argued, mainly from studies using aggregate data, that the ability of major carriers to recover fixed costs has deteriorated in deregulated markets as barometric price leadership is replacing that of dominant firm price leadership. This paper uses disaggregate data to examine the pattern of fares set by airlines as they sell seats up to the time of departure of a service. In particular, it analyses the impact of the entrance of low‐cost carriers into a small country—Portugal—focusing on the changes that are occurring in Lisbon and Porto airports. As such it looks at the way the price of a particular product—an airline service—varies in different market environments and whether price discrimination (yield‐management) is any longer a viable approach to full cost recovery.

Suggested Citation

  • Kenneth Button & Alvaro Costa & Carlos Cruz, 2006. "Ability to Recover Full Costs through Price Discrimination in Deregulated Scheduled Air Transport Markets," Transport Reviews, Taylor & Francis Journals, vol. 27(2), pages 213-230, August.
    • Handle: RePEc:taf:transr:v:27:y:2006:i:2:p:213-230
    DOI: 10.1080/01441640600951949
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    References listed on IDEAS

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    Cited by:

    1. Cruz, Carlos Oliveira & Marques, Rui Cunha, 2011. "Contribution to the study of PPP arrangements in airport development, management and operation," Transport Policy, Elsevier, vol. 18(2), pages 392-400, March.
    2. Paun Iulian Gabriel, 2017. "The Effects Of The Economic Crisis On European Financial Integration And Economic Growth," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 265-274, August.
    3. Button, Kenneth, 2019. "Applied economics and understanding trends in air transportation policy," Transport Policy, Elsevier, vol. 80(C), pages 78-85.
    4. Button, Kenneth & Vega, Henry, 2007. "The Uses of the “Temporal-Fares-Offered Curve” in Air Transportation," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 46(2).
    5. Button, Kenneth & Kramberger, Tomaž & Grobin, Klemen & Rosi, Bojan, 2018. "A note on the effects of the number of low-cost airlines on small tourist airports' efficiencies," Journal of Air Transport Management, Elsevier, vol. 72(C), pages 92-97.

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