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

Listed author(s):
  • Nathalie C. McCaughey
  • Christiaan Behrens
Registered author(s):

    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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    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
    Handle: RePEc:mos:moswps:2011-04
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