The Entry of Low-Cost Airlines: Price Competition in the European Airline Market

Tinbergen Institute Discussion Paper No. TI 04-074/3

29 Pages Posted: 8 Sep 2004

See all articles by Marco Alderighi

Marco Alderighi

Università della Valle d'Aosta; Bocconi University

Alessandro Cento

KLM-Royal Dutch Airlines - Revenue Management Department

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

Date Written: September 2004

Abstract

This paper investigates the response of full service carriers (FSCs) to the entry of low-cost carriers (LCCs). 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 statistical modelling results confirm the conclusions of the theoretical model. Competition among FSCs appears to affect the price levels of business and leisure segments asymmetrically. In contrast, competition with LCCs reduces the fares of FSCs in all classes proportionally.

Keywords: Pricing strategies, yield management, low-cost carriers, European airline market

JEL Classification: D43, L15, L93

Suggested Citation

Alderighi, Marco and Cento, Alessandro and Nijkamp, Peter and Rietveld, Piet, The Entry of Low-Cost Airlines: Price Competition in the European Airline Market (September 2004). Tinbergen Institute Discussion Paper No. TI 04-074/3. Available at SSRN: https://ssrn.com/abstract=587281 or http://dx.doi.org/10.2139/ssrn.587281

Marco Alderighi (Contact Author)

Università della Valle d'Aosta ( email )

Strada dei Cappuccini 2/A
Aosta, 11100
Italy

Bocconi University ( email )

Via Sarfatti 25
20136 Milan, MI 20136
Italy

Alessandro Cento

KLM-Royal Dutch Airlines - Revenue Management Department ( email )

Antwoordnummer 747
1110 VG Schiphol Airport
Netherlands

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446097 (Phone)
+31 20 4446004 (Fax)

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