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Competition in the European aviation market: the entry of low-cost airlines
Highlights ► We model carrier pricing policy in line with its practice of exploiting passenger heterogeneity by charging multiple fares. ► Posted fares of full-service carriers vary in response to competitor type. ► A full-service opponent induces a fall mainly in business fares; a low-cost contender provokes an overall drop of fares.
Abstract This paper investigates the price-setting behavior of full-service airlines in the European passenger aviation market. We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our empirical findings substantially confirm the propositions of the theoretical model. We find that competition among full-service carriers appears to affect the price levels of the business and the leisure segments asymmetrically: there are small reductions in the leisure segments and significant reductions in the business segment of the aviation market. In contrast, competition with low-cost carriers reduces both the business and leisure fares of full-service carriers quite uniformly, with an emphasis on the mid-segment fares.
Competition in the European aviation market: the entry of low-cost airlines
Highlights ► We model carrier pricing policy in line with its practice of exploiting passenger heterogeneity by charging multiple fares. ► Posted fares of full-service carriers vary in response to competitor type. ► A full-service opponent induces a fall mainly in business fares; a low-cost contender provokes an overall drop of fares.
Abstract This paper investigates the price-setting behavior of full-service airlines in the European passenger aviation market. We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our empirical findings substantially confirm the propositions of the theoretical model. We find that competition among full-service carriers appears to affect the price levels of the business and the leisure segments asymmetrically: there are small reductions in the leisure segments and significant reductions in the business segment of the aviation market. In contrast, competition with low-cost carriers reduces both the business and leisure fares of full-service carriers quite uniformly, with an emphasis on the mid-segment fares.
Competition in the European aviation market: the entry of low-cost airlines
Alderighi, Marco (author) / Cento, Alessandro (author) / Nijkamp, Peter (author) / Rietveld, Piet (author)
Journal of Transport Geography ; 24 ; 223-233
2012-01-01
11 pages
Article (Journal)
Electronic Resource
English
Competition in the European aviation market: the entry of low-cost airlines
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