IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/47943.html
   My bibliography  Save this paper

The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights

Author

Listed:
  • Escobari, Diego
  • Mellado, Cristhian

Abstract

This paper estimates the demand for flights in an international air travel market using a unique dataset with detailed information not only on flight choices but also on contemporaneous prices and characteristics of all the alternative non-booked flights. The estimation strategy employs a simple discrete choice random utility model that we use to analyze how choices and its response to prices depend on the departing airport, the identity of the carrier, and the departure date and time. The results show that a 10\% increase in prices in a 100-seat aircraft throughout a 100-period selling season decreases quantity demanded by 7.7 seats. We also find that the quantity demanded is more responsive to prices for Delta and American, during morning and evening flights and that the response to prices changes significantly over different departure dates.

Suggested Citation

  • Escobari, Diego & Mellado, Cristhian, 2013. "The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights," MPRA Paper 47943, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:47943
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/47943/1/MPRA_paper_47943.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Diego Escobari, 2012. "Dynamic Pricing, Advance Sales and Aggregate Demand Learning in Airlines," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 697-724, December.
    3. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, September.
    4. Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
    5. Joanna Stavins, 2001. "Price Discrimination in the Airline Market: The Effect of Market Concentration," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 200-202, February.
    6. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
    7. Diego Escobari & Sang-Yeob Lee, 2012. "Demand shifting across flights and airports in a spatial competition model," Letters in Spatial and Resource Sciences, Springer, vol. 5(3), pages 175-183, October.
    8. Olivier Armantier & Oliver Richard, 2008. "Domestic airline alliances and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 875-904, September.
    9. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter‐Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, January.
    10. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter-Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, 01.
    11. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    12. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    13. Alderighi, Marco, 2010. "Fare dispersions in airline markets: A quantitative assessment of theoretical explanations," Journal of Air Transport Management, Elsevier, vol. 16(3), pages 144-150.
    14. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    15. Raymond Deneckere & James Peck, 2012. "Dynamic Competition With Random Demand and Costless Search: A Theory of Price Posting," Econometrica, Econometric Society, vol. 80(3), pages 1185-1247, May.
    16. Christopher Gedge & James W. Roberts & Andrew Sweeting, 2014. "A Model of Dynamic Limit Pricing with an Application to the Airline Industry," NBER Working Papers 20293, National Bureau of Economic Research, Inc.
    17. Bilotkach, Volodymyr & Gaggero, Alberto A. & Piga, Claudio A., 2015. "Airline pricing under different market conditions: Evidence from European Low-Cost Carriers," Tourism Management, Elsevier, vol. 47(C), pages 152-163.
    18. Kalyan Talluri & Garrett van Ryzin, 2004. "Revenue Management Under a General Discrete Choice Model of Consumer Behavior," Management Science, INFORMS, vol. 50(1), pages 15-33, January.
    19. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
    20. Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence," Economics Letters, Elsevier, vol. 103(1), pages 59-61, April.
    21. James D. Dana Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
    22. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    23. Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence from airlines," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 103(1), pages 59-61.
    24. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    25. Wen, Chieh-Hua & Lai, Shan-Ching, 2010. "Latent class models of international air carrier choice," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(2), pages 211-221, March.
    26. Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012. "Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline," Quaderni di Dipartimento 171, University of Pavia, Department of Economics and Quantitative Methods.
    27. Victor Aguirregabiria & Pedro Mira, 2007. "Sequential Estimation of Dynamic Discrete Games," Econometrica, Econometric Society, vol. 75(1), pages 1-53, January.
    28. Hess, Stephane & Polak, John W., 2005. "Mixed logit modelling of airport choice in multi-airport regions," Journal of Air Transport Management, Elsevier, vol. 11(2), pages 59-68.
    29. Mantin, Benny & Koo, Bonwoo, 2009. "Dynamic price dispersion in airline markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 45(6), pages 1020-1029, November.
    30. James D. Dana Jr., 1999. "Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 632-660, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fukushi, Mitsuyoshi & Delgado, Felipe & Raveau, Sebastián & Santos, Bruno F., 2022. "CHAIRS: A choice-based air transport simulator applied to airline competition and revenue management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 155(C), pages 297-315.
    2. Chiou, Yu-Chiun & Liu, Chia-Hsin, 2016. "Advance purchase behaviors of air tickets," Journal of Air Transport Management, Elsevier, vol. 57(C), pages 62-69.
    3. Escobari, Diego, 2017. "Airport, airline and departure time choice and substitution patterns: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 198-210.
    4. Chiou, Yu-Chiun & Liu, Chia-Hsin, 2016. "Advance purchase behaviors of air passengers: A continuous logit model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 474-484.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Escobari, Diego, 2017. "Airport, airline and departure time choice and substitution patterns: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 198-210.
    2. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    3. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2022. "Hidden prices with fixed inventory: Evidence from the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 157(C), pages 42-61.
    4. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
    5. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    6. Escobari, Diego, 2014. "Estimating dynamic demand for airlines," Economics Letters, Elsevier, vol. 124(1), pages 26-29.
    7. Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
    8. Diego Escobari & Manuel A. Hernandez, 2019. "Separating Between Unobserved Consumer Types: Evidence From Airlines," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1215-1230, April.
    9. Daniel Ackerberg, 2009. "A new use of importance sampling to reduce computational burden in simulation estimation," Quantitative Marketing and Economics (QME), Springer, vol. 7(4), pages 343-376, December.
    10. Paul B. Ellickson & Sanjog Misra, 2011. "Structural Workshop Paper --Estimating Discrete Games," Marketing Science, INFORMS, vol. 30(6), pages 997-1010, November.
    11. Diego Escobari, 2013. "Asymmetric Price Adjustments in Airlines," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(2), pages 74-85, March.
    12. Diego Escobari & Nicholas G. Rupp & Joseph Meskey, 2019. "An Analysis of Dynamic Price Discrimination in Airlines," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 639-662, January.
    13. Escobari, Diego & Rupp, Nicholas & Meskey, Joseph, 2018. "Dynamic Price Discrimination in Airlines," MPRA Paper 88078, University Library of Munich, Germany.
    14. Paul Ellickson & Sanjog Misra, 2012. "Enriching interactions: Incorporating outcome data into static discrete games," Quantitative Marketing and Economics (QME), Springer, vol. 10(1), pages 1-26, March.
    15. Johannes Van Biesebroeck & Aamir Hashmi, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," 2007 Meeting Papers 362, Society for Economic Dynamics.
    16. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, September.
    17. Coublucq, Daniel, 2013. "Demand estimation with selection bias: A dynamic game approach with an application to the US railroad industry," DICE Discussion Papers 94, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    18. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    19. Varella, Rafael R. & Frazão, Jessica & Oliveira, Alessandro V.M., 2017. "Dynamic pricing and market segmentation responses to low-cost carrier entry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 151-170.
    20. Gallant, A. Ronald & Hong, Han & Khwaja, Ahmed, 2018. "A Bayesian approach to estimation of dynamic models with small and large number of heterogeneous players and latent serially correlated states," Journal of Econometrics, Elsevier, vol. 203(1), pages 19-32.

    More about this item

    Keywords

    Airline demand; discrete choice; flight choice; demand estimation.;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:47943. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.