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Airline Pricing under Different Market Conditions: evidence from European Low-Cost Carriers

Author

Listed:
  • Volodymyr Bilotkach

    (Newcastle Business School, Northumbria University, UK.)

  • Alberto A. Gaggero

    () (University of Pavia, Italy.)

  • Claudio A. Piga

    () (School of Business and Economics, Loughborough University, UK)

Abstract

Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. A fortiori, this implies a monotonically increasing temporal profile of fares. In this paper, we exploit the presence of drops in offered fares over time as an indicator of an active yield management intervention by two main European Low-Cost Carriers observed daily during the period June 2002 - June 2003. Our results indicate that yield management is effective in raising a flight’s load factor. Furthermore, yield management interventions are more intense, and generate a stronger impact, on more competitive routes: one possible interpretation is that a reduction in competitive pressure allows the carriers to adopt a more standardized approach to pricing. Similarly, we find that yield management interventions are more effective in raising the load factor on routes where the customer mix is more heterogenous (i.e., it includes passengers traveling for leisure, business and for family matters). On markets with homogeneous customer base, no robust yield management effect was observed.

Suggested Citation

  • Volodymyr Bilotkach & Alberto A. Gaggero & Claudio A. Piga, 2012. "Airline Pricing under Different Market Conditions: evidence from European Low-Cost Carriers," Discussion Paper Series 2012_01, Department of Economics, Loughborough University, revised Jan 2012.
  • Handle: RePEc:lbo:lbowps:2012_01
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    5. Graziano Abrate & Giampaolo Viglia & Javier Sanchez García & Santiago Forgas-Coll, 2016. "Price Competition within and between Airlines and High-Speed Trains: The Case of the Milan—Rome Route," Tourism Economics, , vol. 22(2), pages 311-323, April.
    6. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    7. Sato, Kimitoshi, 2019. "Price Trends and Dynamic Pricing in Perishable Product Market Consisting of Superior and Inferior Firms," European Journal of Operational Research, Elsevier, vol. 274(1), pages 214-226.
    8. Ma, Jie & Tse, Ying Kei & Wang, Xiaojun & Zhang, Minhao, 2019. "Examining customer perception and behaviour through social media research – An empirical study of the United Airlines overbooking crisis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 127(C), pages 192-205.
    9. Melis, Giuseppe & Piga, Claudio A, 2016. "Are all online hotel prices created dynamic? An empirical assessment," MPRA Paper 75896, University Library of Munich, Germany.
    10. Alderighi, Marco & Nicolini, Marcella & Piga, Claudio A., 2019. "Is low-cost carriers’ revenue management a firm capability?," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 15-22.
    11. Beria, Paolo & Tolentino, Samuel & Filippini, Gabriele, 2020. "Are prices reduced from direct competition in high-speed rail? Some unexpected evidences from Italy," MPRA Paper 98841, University Library of Munich, Germany.
    12. Escañuela Romana, Ignacio, 2018. "La elasticidad precio de la demanda de transporte aéreo de pasajeros en los Estados Unidos [The price elasticity of demand for air travel in the United States]," MPRA Paper 83572, University Library of Munich, Germany.
    13. 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.
    14. Cirer-Costa, Joan Carles, 2017. "Estrategias de fijación y ofuscación de precios en los hoteles de sol y playa [Pricing and obfuscation strategies for sun and beach hotels]," MPRA Paper 81823, University Library of Munich, Germany.
    15. Alderighi, Marco & Nicolini, Marcella & Piga, Claudio A., 2016. "Targeting leisure and business passengers with unsegmented pricing," Tourism Management, Elsevier, vol. 54(C), pages 502-512.
    16. Liu, Chih-Hsing Sam & Lee, Tingko, 2016. "Service quality and price perception of service: Influence on word-of-mouth and revisit intention," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 42-54.
    17. Masood Kiarashrad & Seyed Hamid Reza Pasandideh & Mohammad Mohammadi, 2021. "Identifying and prioritizing the essential factors on ticket pricing strategy in a local market based on empirical study: Iranian domestic market," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(1), pages 76-87, February.
    18. Gaggero, Alberto A. & Ogrzewalla, Lukas & Bubalo, Branko, 2019. "Pricing of the long-distance bus service in Europe: The case of Flixbus," Economics of Transportation, Elsevier, vol. 19(C), pages 1-1.
    19. Chen, Ming & Chen, Zhi-Long, 2019. "Uncertain about your travel plan? Lock it and decide later: Dynamic pricing with a fare-lock option," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 1-26.
    20. 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.
    21. Alderighi, Marco & Gaggero, Alberto A & Piga, Claudio A, 2016. "The hidden side of dynamic pricing in airline markets," MPRA Paper 71674, University Library of Munich, Germany.
    22. Chiu, Su-Chin & Liu, Chih-Hsing & Tu, Jin-Hua, 2016. "The influence of tourists' expectations on purchase intention: Linking marketing strategy for low-cost airlines," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 226-234.
    23. 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.
    24. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.

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    More about this item

    Keywords

    Easyjet; Intertemporal Pricing; Panel Data; Ryanair; Yield Management.;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • 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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