Dynamic Price Competition in the Air Transport Market: An Analysis on Long-Haul Routes

Abstract : The pricing policy of airlines is based on revenue management. Revenue management analysts daily observe competitive prices and strategically adjust their own tariffs. One could expect this behavior to lead to a sound homogenization of airline prices evolution while competing on a market. We test empirically whether airline pricing strategies evolve on a similar manner, on a particular set of long-haul routes. Using new and original data including information on ticket prices paid, purchasing and departure dates, we estimate a model for the effect of dynamic factors on the evolution of ticket prices, based on economic theory. We use a 3 rd degree polynomial regression between prices and number of days to departure for each airline operating on the routes, and control for key revenue management variables, competition factors and individual effects. Our results show that competing airlines pricing strategies are statistically distinct during their ticket sale period. Airlines maximize their profits by sequentially increasing or decreasing their prices, but they do so in a non-synchronized fashion, and with different magnitudes.
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Catherine Muller-Vibes, Chantal Roucolle, Miguel Urdanoz. Dynamic Price Competition in the Air Transport Market: An Analysis on Long-Haul Routes. 22nd Air Transport Research Society World Conference (ATRS 2018), Jul 2018, Séoul, South Korea. ⟨hal-01822988⟩

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