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

Author

Listed:
  • Volodymyr Bilotkach

    (University of California, Irvine)

  • Alberto A. Gaggero

    () (University of Pavia)

  • Claudio A. Piga

    (Loughborough University; RCEA)

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, 2011. "Airline Pricing under Different Market Conditions: Evidence from European Low-Cost Carriers," Working Paper series 47_11, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:47_11
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    Cited by:

    1. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
    2. Bergantino, Angela Stefania & Capozza, Claudia, 2014. "One price for all? The role of market captivity as a price discrimination device: evidence from the Italia city-pair markets," Working Papers 14_1, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    3. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    4. Melis, Giuseppe & Piga, Claudio A, 2016. "Are all online hotel prices created dynamic? An empirical assessment," MPRA Paper 75896, University Library of Munich, Germany.
    5. 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.
    6. 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.
    7. 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.
    8. repec:eee:touman:v:54:y:2016:i:c:p:502-512 is not listed on IDEAS
    9. 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.
    10. 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.
    11. 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.
    12. Angela Stefania Bergantino & Capozza, Claudia, 2012. "Airline Pricing Behaviour Under Limited Intermodal Competition," Working Papers 12_6, SIET Società Italiana di Economia dei Trasporti e della Logistica, revised 2012.
    13. repec:eme:aiaezz:s2212-160920140000004006 is not listed on IDEAS
    14. repec:eee:transa:v:112:y:2018:i:c:p:46-59 is not listed on IDEAS
    15. repec:eee:touman:v:62:y:2017:i:c:p:54-64 is not listed on IDEAS
    16. Diego Escobari & Cristhian Mellado, 2014. "The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights," Advances in Airline Economics,in: The Economics of International Airline Transport, volume 4, pages 177-198 Emerald Publishing Ltd.
    17. 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.

    More about this item

    Keywords

    Easyjet; Intertemporal Pricing; Panel Data; Ryanair; Yield Management;

    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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