The Price Roller Coaster: Can Air Carriers Ride it?

Last minutes tickets, group tariffs, agency prices, low cost promotions are buzzwords in the intensively competitive airline industry. These are all connect to prices strategies which constrains and simultaneously impels air carriers to analyze and redefine commercial strategic decisions. The low-cost airline model versus legacy carrier model has spurred ongoing debate. With the current world economic crisis (especially in Europe), airlines need to redefine their marketing strategies so as to: (i) survive/compete and (ii) meet consumers’ demands, which are ever-more price-sensitive and questioning the value proposition of the airline carriers. Thus, it seems relevant to revive research on this subject and to unveil some of the elements associated with price discrimination strategies. This study analyzes price dispersion in the intra-European airline market, using a significant sample of the prices posted on the city pairs Lisbon – Paris and Madrid – London. The aims is to test some key factors that may influence price dispersion, which airlines can take into account when developing and evaluating their pricing strategies. Specifically, this work attempts to test the relation between price dispersion among airlines and their capability of price discriminating as a result of their market power and differentiating full service carriers from low cost carriers. The results revealed that neither the full service nor the low cost carriers show differences on price dispersion, when testing the interaction of these type of airlines with each of the market segmentation factors.