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Paying for Status? - The effect of frequent flier program member status on air fare choice

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  • Nathalie C. McCaughey
  • Christiaan Behrens
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    Abstract

    Frequent flier programs (FFPs) are said to affect airline customer behaviour such that revenue of sponsoring airlines increases. To this end prior research relies on assumptions of competition, lock-in effects and variations in scale and scope of FFPs. Whether a FFP by itself induces a price premium remains unanswered. In an effort to shine some light on this question, we apply discrete choice analysis to a new proprietary data set of actual frequent flier member flight behaviour (fares paid, FFP points received) over a 12-months period. We take advantage of the variations in the structure of FFPs (Gold, Silver and Bronze tier levels), to assess both the existence of a FFP price premium and the price premiums average monetary value in US$ per FFP member. Our findings suggest that FFP members are willing to pay a price premium of up to six percent, which is directly attributable to the FFP.

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/0411payingmccaugheybehrens.pdf
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    Bibliographic Info

    Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 04-11.

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    Length: 40 pages
    Date of creation: Jun 2011
    Date of revision:
    Handle: RePEc:mos:moswps:2011-04

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    Postal: Department of Economics, Monash University, Victoria 3800, Australia
    Phone: +61-3-9905-2493
    Fax: +61-3-9905-5476
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    Web page: http://www.buseco.monash.edu.au/eco/
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    Web: http://www.buseco.monash.edu.au/eco/research/papers/

    Related research

    Keywords: discrete choice analysis; loyalty programs; relationship marketing; price premium; frequent flier program; CRM;

    This paper has been announced in the following NEP Reports:

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    Cited by:
    1. de Boer, Evert R. & Gudmundsson, Sveinn Vidar, 2012. "30 years of frequent flyer programs," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 18-24.

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