Service-quality and pricing strategies in the airline industry: The role of distance
Year: 2024
Type: article
Abstract: This paper proposes a theoretical setup along with an empirical application related to the airline industry to analyze carriers' service quality (i.e., flight frequency) and pricing decisions. These decisions depend on route distance, as only short-haul routes are affected by intermodal competition. This additional source of competition on short-haul routes explains the positive effect of distance on frequencies, as airlines can attract more demand and boost profits by increasing service quality. Fares follow the same pattern because longer routes are more costly to operate, but also because a higher service quality entails a certain "product upgrade" that translates into a higher passenger willingness to pay. Finally, the intensity of these effects differs between network and low-cost carriers, yielding an increased differentiation between them as route distance rises. However, intermodal competition on short-haul routes affects more intensively network carriers than low-cost carriers, thereby acting as a brake on this observed differentiation.
Source: Economics of Transportation
Authors: Xavier Fageda, Ricardo Flores-Fillol
Language: English
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $2,200
OpenAlex ID: W4404956549