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

Author

Listed:
  • 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.

Suggested Citation

  • Darin Lee & María José Luengo-Prado, 2005. "The Impact of Passenger Mix on Reported “Hub Premiums” in the U.S. Airline Industry," Southern Economic Journal, Southern Economic Association, vol. 72(2), pages 372-394, October.
  • Handle: RePEc:sej:ancoec:v:72:2:y:2005:p:372-394
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    Cited by:

    1. repec:eee:transa:v:103:y:2017:i:c:p:509-524 is not listed on IDEAS
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    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. 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.
    8. repec:eee:jaitra:v:64:y:2017:i:pb:p:101-112 is not listed on IDEAS
    9. Darin Lee & Nicholas G. Rupp, 2007. "Retracting a Gift: How Does Employee Effort Respond to Wage Reductions?," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 725-761.
    10. repec:eee:touman:v:41:y:2014:i:c:p:28-42 is not listed on IDEAS
    11. Federico Ciliberto & Jonathan W. Williams, 2010. "Limited Access to Airport Facilities and Market Power in the Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 467-495.
    12. Agostini, Claudio A. & Inostroza, Diego & Willington, Manuel, 2015. "Price effects of airlines frequent flyer programs: The case of the dominant firm in Chile," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 283-297.
    13. repec:eee:touman:v:31:y:2010:i:1:p:36-44 is not listed on IDEAS
    14. 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.
    15. Wei, Fangwu & Grubesic, Tony H., 2016. "The pain persists: Exploring the spatiotemporal trends in air fares and itinerary pricing in the United States, 2002–2013," Journal of Air Transport Management, Elsevier, vol. 57(C), pages 107-121.
    16. 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.
    17. repec:eee:jaitra:v:64:y:2017:i:pa:p:55-59 is not listed on IDEAS
    18. 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.
    19. Tan, Kerry M. & Samuel, Andrew, 2016. "The effect of de-hubbing on airfares," Journal of Air Transport Management, Elsevier, vol. 50(C), pages 45-52.
    20. 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;The Industrial Organization Society, vol. 34(4), pages 307-326, June.
    21. 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.
    22. Anirban Sengupta & Steven Wiggins, 2006. "Airline Pricing, Price Dispersion and Ticket Characteristics On and Off the Internet," Working Papers 06-07, NET Institute, revised Oct 2006.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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