A Guide to Booking Airline Tickets Online

Abstract

In this study, we document and analyze price-offer curves (the dynamics of offered prices as the departure date approaches) for 105 specific round trip itineraries on 50 busy US routes. The data were collected from the three leading on-line travel agents’ web-sites. We exploit across-route variation in the level of competition and presence of low-cost carriers (LCC), in particular Southwest Airlines (a carrier that does not sell its tickets through on-line travel agents). Both fares and yields are consistently higher along the entire price-offer curve on less competitive markets, and on routes without LCC presence. Price changes are smoother on competitive routes than on markets with one or two competitors. Price drops are observed across a spectrum of the markets, and at any day prior to departure. In particular, at least one price drop was observed within ten days before the flight for about half of all the round trips we tracked. In about one-third of round trip itineraries, we observed price drops in the last week prior to departure. At the same time, the shape of the average price-offer curve is as expected – flat up to about three weeks before the flight, and rising rapidly afterwards. We do not document systematic differences across on-line travel agents; however, differences in price quotes are not infrequent. Simple cost-benefit analysis shows that when booking a ticket closer to the planned departure date; a traveler should comparison-shop.

Keywords: price-offer curves, price dynamics, online prices

JEL Classification: D4, L93