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Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier

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  • Fageda, Xavier
  • Jiménez, Juan Luis
  • Perdiguero, Jordi

Abstract

In the post-liberalization period, competition has increased in airline markets. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive on less dense routes and shorter routes.

Suggested Citation

  • Fageda, Xavier & Jiménez, Juan Luis & Perdiguero, Jordi, 2011. "Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier," Journal of Transport Geography, Elsevier, vol. 19(4), pages 658-669.
  • Handle: RePEc:eee:jotrge:v:19:y:2011:i:4:p:658-669
    DOI: 10.1016/j.jtrangeo.2010.07.006
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    1. repec:eee:jotrge:v:24:y:2012:i:c:p:223-233 is not listed on IDEAS
    2. Fageda, Xavier & Suau-Sanchez, Pere & Mason, Keith J., 2015. "The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 289-296.
    3. Kuangnen Cheng & Hui-Ping Chen & Jason Lee, 2015. "Competition behavior in service frequency for U.S. airlines," Service Business, Springer;Pan-Pacific Business Association, vol. 9(1), pages 1-16, March.
    4. 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.
    5. Cui, Qiang, 2019. "The online pricing strategy of low-cost carriers when carbon tax and competition are considered," Transportation Research Part A: Policy and Practice, Elsevier, vol. 121(C), pages 420-432.
    6. Ofelia Betancor & Juan Luis Jiménez, 2011. "When trains go faster than planes: the strategic reaction of airlines in Spain," ERSA conference papers ersa11p295, European Regional Science Association.
    7. repec:eee:touman:v:60:y:2017:i:c:p:390-403 is not listed on IDEAS
    8. 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.
    9. Tsai, Tsung-Hsien, 2016. "Homogeneous service with heterogeneous products: Relationships among airline ticket fares and purchase fences," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 164-175.
    10. Delbari, Seyyed Ali & Ng, Siew Imm & Aziz, Yuhanis Abdul & Ho, Jo Ann, 2016. "An investigation of key competitiveness indicators and drivers of full-service airlines using Delphi and AHP techniques," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 23-34.
    11. Bergantino, Angela S. & Capozza, Claudia & Capurso, Mauro, 2015. "The impact of open access on intra- and inter-modal rail competition. A national level analysis in Italy," Transport Policy, Elsevier, vol. 39(C), pages 77-86.
    12. repec:eee:jotrge:v:24:y:2012:i:c:p:262-270 is not listed on IDEAS

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    Keywords

    Airlines; Competition; Low-cost carriers;

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