Airline pricing under different market conditions

Evidence from European Low Cost Carriers

Volodymyr Bilotkach, Alberto Gaggero, Claudio A. Piga

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. 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, and measure its effectiveness. We find that reduction of the offered airfare by one standard deviation raises a flight's load factor on average by 2.7 percent, a measure unaffected by the intensity of competition in a route. Furthermore, yield management interventions are less effective the higher the share of leisure (holiday and visiting friends and relatives) traffic on the route. This result runs counter to the common perception of leisure passengers being more responsive to price changes.

Original languageEnglish
Pages (from-to)152-163
Number of pages12
JournalTourism Management
Volume47
Early online date10 Oct 2014
DOIs
Publication statusPublished - Apr 2015
Externally publishedYes

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market conditions
pricing
flight
Transportation charges
market
costs
Seats
cost
evidence
Costs
holiday
management
traffic
Market conditions
Yield management
Airline pricing
Low-cost carriers
Leisure
indicator
price

Cite this

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abstract = "Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. 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, and measure its effectiveness. We find that reduction of the offered airfare by one standard deviation raises a flight's load factor on average by 2.7 percent, a measure unaffected by the intensity of competition in a route. Furthermore, yield management interventions are less effective the higher the share of leisure (holiday and visiting friends and relatives) traffic on the route. This result runs counter to the common perception of leisure passengers being more responsive to price changes.",
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Airline pricing under different market conditions : Evidence from European Low Cost Carriers. / Bilotkach, Volodymyr; Gaggero, Alberto; Piga, Claudio A.

In: Tourism Management, Vol. 47, 04.2015, p. 152-163.

Research output: Contribution to journalArticle

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