Pricing and travelers' decision to use frequent flyer miles: evidence from the U.S. airline industry
Previous research on Frequent Flyer Programs (FFP) covered various topics, from analyzing the effect of international airline alliances on domestic travel demand to the effect of airport dominance and FFP on pricing. However, one important constraint in previous empirical research on FFP is the lack of a measure of these programs at a specific time-variant route and carrier level. In this chapter we use a novel way to measure the extent of FFP which allows us to analyze how these programs change from route to route, across carriers and over time. The dataset, that covers the quarters from 1993.1 to 2009.3, was constructed with data obtained from the Bureau of Transportation and Statistics and it has information on prices, proportion of frequent flyer tickets as well as various route and carrier variables. Using panel data techniques to control for unobservables along with the use of instrumental variables to control for potentially endogenous regressors, the results found are consistent with our economic model: travelers are more likely to redeem their frequent flyer miles in more expensive routes. Moreover, business travelers, who usually pay higher prices, were found to be less price sensitive than tourists when switching to buy with accumulated miles.
|Date of creation:||28 May 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Borenstein, Severin & Rose, Nancy L, 1994.
"Competition and Price Dispersion in the U.S. Airline Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 102(4), pages 653-83, August.
- Severin Borenstein & Nancy L. Rose, 1991. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
- Mara Lederman, 2007. "Do enhancements to loyalty programs affect demand? The impact of international frequent flyer partnerships on domestic airline demand," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1134-1158, December.
- Escobari, Diego, 2009.
"Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence,"
34857, University Library of Munich, Germany.
- Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence," Economics Letters, Elsevier, vol. 103(1), pages 59-61, April.
- Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, 02.
- Mara Lederman, 2008. "Are Frequent-Flyer Programs a Cause of the "Hub Premium"?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 35-66, 03.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32201. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.