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Abstract

We analyse the fare setting strategy of a leading European low-cost carrier, Ryanair, which, until recently, adopted an unsegmented pricing policy (all tickets belong to a single fare class). We show that, to account for different demand characteristics, the company adjusts the two main components governing the dynamics of posted fares, namely time (the number of days before departure) and capacity (the current number of available seats). We find that: 1) in routes with a strong presence of leisure (business) traffic, fares are set to be less (more) responsive to the time component; 2) in schedules more suitable for leisure (business) travellers, fares are set to be less (more) responsive to the capacity component.

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... Because the former are more likely to learn about their need to travel only a few days before the departure date and their demand is quite inflexible, fares are expected to rise over time (Gaggero and Piga, 2011;Alderighi et al., 2016). ...
... First, offering advance-purchase discounts can be an optimal strategy when both individual and/or aggregate demand is uncertain (i.e., individuals learn their need to travel at different points in time and airlines cannot predict which flight will enjoy peak demand), and consumers have heterogenous valuations (e.g., they either incur different "waiting costs" if they take a flight that does not leave at their ideal time or they simply value the flight differently). 3 Second, the revenue management models that predict a declining option value assume a constant distribution of willingness to pay, and therefore do not account for the fact that business travelers tend to book at a later stage (Alderighi et al., 2016). Furthermore, those models assume an exogenous demand process and thus abstract from the presence of strategic buyers, i.e., those who maximize long-run utility by considering whether to postpone their purchases hoping to obtain a lower price. ...
... While models (2) and (5) use the full sample, models (3) and (4) restrict the analysis of model (2) to the case of flights in, respectively, "Leisure" and "Business" routes. Following Alderighi et al. (2016) and Gaggero and Piga (2011), the routes' classification is based on data derived from the "International Passenger Survey Depending on whether such a share is below or above the value of 16 per cent, routes are respectively labeled as "Leisure" or "Business". Based on the findings in Alderighi et al. (2016), we should expect a steeper temporal profile for flights in business routes, due to the larger proportion of price-inelastic travelers who are more likely to book only a few days before departure. ...
Article
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An often disregarded, albeit central, aspect of the airline pricing's problem consists in assigning a fare to all the available seats on an airplane at the beginning of and during the whole booking period. We show how a flight's fare distribution is set in practice and how it changes over time using evidence from a leading European low-cost carrier. Such pricing behavior is consistent with the main predictions from the theoretical model we present. First, fare distributions are increasing across seats because a lower fare for the seat on sale enhances the likelihood of selling the subsequent seats. Second, over time fare distributions move, on average, downward to reflect the perishable nature of a flight's seats. Third, due to the increasing profile of the fare distributions across seats, we find that the price observed by prospective buyers tends to increase as the date of departure nears.
... Our results suggest that the elasticity at the mean price is below 320 unity and is equal to -0.753, thus indicating that a 1% increase in the price generates a 0.8% Brons et al., 2002; Oum et al., 1992). It is indeed well known that business passengers 343 are less price sensitive than leisure passengers (Alderighi et al., 2016; Granados et al., 2012a; 344 Granados et al., 2012b) and that they are used to buying flight tickets only a few days before 345 departure (Alderighi et al., 2016; Salanti et al., 2012). The increase in the proportion of business to generally be less price sensitive, usually buy tickets during weekdays (Mantin & Koo, 2010), 365 whereas leisure travellers, who are more price sensitive and have lower search costs, book their 366 flights on the weekends (Mumbower et al., 2014). ...
... Our results suggest that the elasticity at the mean price is below 320 unity and is equal to -0.753, thus indicating that a 1% increase in the price generates a 0.8% Brons et al., 2002; Oum et al., 1992). It is indeed well known that business passengers 343 are less price sensitive than leisure passengers (Alderighi et al., 2016; Granados et al., 2012a; 344 Granados et al., 2012b) and that they are used to buying flight tickets only a few days before 345 departure (Alderighi et al., 2016; Salanti et al., 2012). The increase in the proportion of business to generally be less price sensitive, usually buy tickets during weekdays (Mantin & Koo, 2010), 365 whereas leisure travellers, who are more price sensitive and have lower search costs, book their 366 flights on the weekends (Mumbower et al., 2014). ...
... Despite the importance of understanding the dynamics underpinning the price elasticity of 494 demand in the air transport industry (Brons et al., 2002; Mumbower et al., 2014), only a few 495 studies attempt to investigate this phenomenon, limiting their focus to the US context (e.g. 496 Granados et al., 2012a; Granados et al., 2012b; Mumbower et al., 2014Alderighi et al. 2016; Mantin & Koo, 2010; Salanti et al., 2012), who usually book 515 flights departing in the morning or after lunchtime and from Mondays to Fridays, and for passengers increases, the price elasticity values are instead higher. ...
Article
This study investigates the price elasticity of demand in the European low-cost carrier (LCC) industry by analysing Internet fares for all easyJet flights departing from the Amsterdam Schiphol airport towards 21 European destinations between March and September 2015. Results suggest that the price elasticity of demand greatly varies across different dimensions, ranging from-0.535 for the business-oriented route of Hamburg to-1.915 for the leisure- oriented route of Split. Price elasticity is also found to be higher for reservations made more days in advance, for reservations and departures occurring on weekends, and for flights taking off during lunchtime and in the summer period. All results are consistent with the different behaviours of leisure and business passengers and the ongoing increase in the business component of the LCC passenger mix.
... The type of price discrimination that is related to the time horizon between the booking date and the travel date-in industry jargon, the "lead time"-is known as intertemporal price discrimination (IPD). Most previous research on IPD examines airline management (Escobari, 2012;Malighetti et al., 2009;Williams, 2018;Koenisberg, 2006;Alderighi et al., 2016;Morlotti et al., 2017;Alderighi et al., 2018). Less attention has been paid to the accommodation industry (Abrate and Viglia, 2016;Melis and Piga, 2017;Abrate et al., 2012;Abrate et al., 2019;Mitra, 2020). ...
... Intertemporal price adjustments can be revealed by either upward or downward variations during the booking period that precedes the service consumption (Melis and Piga, 2017). The sign and the magnitude of the price fluctuation depend on two factors: the expectation regarding the customer's willingness to pay and the capacity stock (Alderighi, 2016). Threfore, we could describe the price as a function of time-invariant characteristics (e.g., room facilities or flight route), the date of travel (seasonality), the lead time, and the remaining capacity. ...
Article
This paper investigates the extent to which the implementation of intertemporal price discrimination affects Airbnb listings’ revenue. We found that on average, a price surge (i.e., increasing the price as we approach the date of service consumption) has an adverse effect on revenue. However, the magnitude of such effect exhibits significant heterogeneity among listings. Through the application of generalized random forests, a causal machine learning technique, we identify exacerbating and moderating treatment modifiers and shed light on the listing dimensions that cause price surges to be particularly detrimental for hosts’ revenue. Available at :https://authors.elsevier.com/a/1clxJ-Jjxlj22
... One relates to the perishable nature of seats, which, as argued in McAfee and te Velde (2007) and shown in Sweeting (2012), is revealed by a reduction over time of the same seat's fare. The other form, instead, manifests itself as a revision upward of a seat's fare, and is consistent with both an unpredicted positive shock to demand and an intertemporal discriminatory motive if it occurs more frequently close to the departure date when, for instance, a larger proportion of business-people, i.e., buyers with a higher willingness to pay (WTP), enters the market (Alderighi et al., 2016, Escobari et al., 2016, Lazarev, 2013, Williams, 2017. ...
Preprint
If flight fares cannot be continuously and instantaneously updated, then there exist 'static pricing' spells that the airlines manage by defining a fare for the entire flight's capacity, i.e., a fare distribution. Evidence indicates static spells' duration depends on a flight's load factor, its selling rate and the time to departure. Overall, no support is found for the assumption that airlines adjust fares constantly. 'Dynamic pricing' identifies the airline's decision to end a static spell by revising a flight's fare distribution; we study the theoretical and empirical conditions for classifying dynamic pricing as discriminatory. JEL Classification: D22, L11, L93.
... The effect on hotel prices was negligible. Airfares, by contrast, show severe temporary alterations with respect to the evolution predicted in the absence of disturbances (Alderighi, Nicolini, & Piga, 2016). At first, airfares fell to the same extent as the British pound, but shortly afterwards they began to evolve differently. ...
Article
Since mid-2015, the Mediterranean region has been rocked by a series of events that have collapsed major tourism markets like Egypt and Tunisia. This phenomenon has led to a substantial diversion of demand toward the countries of the Northern Mediterranean as evidenced by the rise in hotel prices. This growth in demand, however, has not been broad-based. While it has significantly benefited destinations such as the Balearic Islands, other destinations have seen a rather small effect. Also, at the level of company type and category, the new situation has primarily benefited low-end and mid-range establishments and major hotel chains. Lastly, Brexit has added market uncertainty and pushed down both the British pound and the share prices of large companies in the tourism sector—phenomena that will have long-term effects.
... Dynamic pricing is generally regarded as a form of price discrimination between "leisure" and "business" travelers on a single flight or route (Alderighi, Nicolini, & Piga, 2016;Holloway, 2008;Salanti, Malighetti, & Redondi, 2012). Indeed, leisure travelers are more inclined to book in advance unlike business travelers. ...
Article
The pricing of low-cost carriers (LCCs) compared with traditional airlines has been extensively investigated since their inception in the air transport market. Abundant empirical evidence attests that, on average, LCCs' fares (per km) are lower than those usually offered by full-service carriers (FSCs). Such literature, however, paid virtually no attention to the conditions under which LCCs lose their convenience compared to traditional airlines. The purpose of this study is to investigate the occurrence of LCCs sometimes offering higher fares than FSCs on competing flights. By using a dataset expressly collected for this purpose, we are able to quantify its frequency and suggest some possible explanations. These findings concur to cast some questions on the widely held preconception of vertical differentiation between LCCs' and FSCs’ offered services. Further research will be needed in order to understand the relative weight of the suggested factors.
... One of the strategies of revenue management systems and pricing has consisted of offering cheaper prices to those willing to buy sooner, especially in the case of leisure travelers (Wen & Chen, 2017), who are more price sensitive than business travelers (Morlotti et al., 2017). The revenue management system then adjusts the price of tickets as the departure date approaches, with a price elasticity that takes into account the market response and its characteristics (Alderighi et al., 2016;Williams, 2020). ...
... Very few authors make use of pure or standardised values (here, the share of expenditures for categories of tourists' expenditures). Few existing studies use the Tobit model (Tobin, 1958;Zheng and Zhang, 2013;Alderighi et al., 2016). Even fewer adopt censored models, such as the Double-Hurdle (Disegna and Copyright © FrancoAngeli This work is released under Creative Commons Attribution -Non-Commercial -NoDerivatives License. ...
Article
By applying the Hurdle-Double model to 2,461 passengers at the Olbia-Costa Smeralda Airport (Sardinia, Italy), this study analyses whether sociodemographics, travel-related variables, flight-related variables and pre-intention to buy significantly influence passengers' expenditures for food and beverages. Our findings reveal that the ‘decision to buy' is significantly influenced by sociodemographics (i.e. income) and flight-related variables (i.e. waiting time prior to embarking), while expenditure levels are significantly influenced by age, travel-related variables (i.e. type of accommodation) and pre-intention to buy. Managerial implications are discussed and suggestions for further research are given.
... Some criteria for intertemporal price discrimination involve the degree of patience (Su, 2007) and the nature of the customer, business or leisure (Alderighi et al., 2016). For instance, Su (2007) considers a heterogeneous population of both myopic and strategic consumers. ...
Article
Full-text available
The objective of this article is to analyze the effect of dynamic price variability on revenue maximization. While dynamic pricing is a common practice in tourism, this is the first comprehensive study on the relationship between price variability and revenue maximization. Within the framework provided by the literature on intertemporal price discrimination, price fairness, inventory controls and organizational culture, this research proposes and applies a new hedonic revenue model on a sample of 21,687 observations. The findings suggest that higher dynamic price variability leads to higher hotel revenues. Strategic room unavailability and review rating also exert a clear positive revenue impact. Overall, the benefits from charging different prices for the same service (intertemporal price discrimination) and limiting the number of units available before the demand is known (inventory control) outweigh the potential negative effects of price unfairness and organizational culture. The paper concludes by providing actionable levers for hospitality managers.
... From the perspective of heritage, several tangible and intangible factors contribute to the food heritage in a historical place (UNESCO, 2003;Ron and Timothy, 2013;Brulotte and Di-Giovine, 2014;UNESCO, 2019). Also, from the point of management, food is a part of the tourism system and is a vital necessity Mak et al., 2012;Ron and Timothy, 2013;Alderighi et al., 2016). In the same vein, other scholars (e.g. ...
Article
Purpose – The purpose of this paper is to contribute the advancement of knowledge on food heritage and indigenous entrepreneurship in a non-Western country, specifically in the Persian gardens as the touristic destination for increasing the tourism and food businesses in Iran. Design/methodology/approach – The methodological approach adopted is based on qualitative and quantitative approaches to compare two representative gardens named as Bagh-Chehel-Sotoun and Bagh-Fin, as famous examples of a Persian garden in Iran. The methods supported the research to explain the lack of strategies for improving virtuous cycles in Persian gardens despite their potentials as the main places to attract many tourists. Findings – Regarding local food and the quality of servicing, most of the visitors and tourists (85–90%) had interest to test local and traditional foods around both gardens, but they had no sufficient awareness of Iranian traditional foods. According to the tourists’ interests, the authors concluded the lack of servicing and facilities to present and introduce local and traditional food for tourists. Research limitations/implications – Despite the limitation of local food services and lack of awareness of tourists about local foods, the implication of the study offers possible avenues to promote local food business. Practical implications – The results could be useful for cultural heritage and tourism organizations and for investors in the economic sector due to more exploitation of the tourism industry. Originality/value – The paper is the first work evaluating the Persian garden with a new perspective of local foods in Iran. Keywords: Local food, Indigenous entrepreneurship, Persian garden, Tourism Paper type Case study
... Dynamic pricing strategy refers to continuously implementing demand-based differential prices to maximize profit (Gibbs et al., 2018). The implementation of dynamic pricing in the airline industry has been extensively studied (Alderighi et al., 2016;Bilotkach et al., 2015). When applied in the hotel industry, a dynamic pricing strategy helps reduce the seasonal variation of guest volume by charging higher room rates when demand is high and offering discounts when demand is low (Mitra, 2019). ...
Purpose This study systematically reviewed pricing research published in leading marketing and hospitality and tourism (H&T) journals between 2010 and 2019. It attempts to concretize the understanding of the evolving patterns of pricing research in both fields and suggests an agenda for future research in H&T. Design/methodology/approach This study performed keyword co-occurrence analyses and co-citation analyses on the bibliographic data of 575 articles from marketing and H&T journals. Content analysis was applied to investigate the emerged topics in H&T. Findings The marketing discipline showed a persistent focus on research themes including price promotion, reference price, price fairness and pricing strategy. The H&T domain experienced a significant content enrichment of preexistent research topics. H&T scholars showed a growing interest in studying pricing for sharing economy accommodations and the interplay between pricing and electronic word-of-mouth. While marketing research applied theories from multiple disciplines as the theoretical foundations, H&T studies adopted the hedonic pricing model as an overarching theory. Practical implications Future pricing research in H&T may incorporate theories from other disciplines such as psychology, sociology and anthropology to broaden the scope of the study. Besides, innovative study designs and complex data analysis techniques should be encouraged. Topicwise, H&T scholars can dive deeper into price promotion and distribution channel price management. Originality/value This is the first study consolidating the pricing literature in H&T and marketing. It also suggests the potential research directions for researchers.
... This includes all business travellers who are likely to be returning home. This implies that all passengers are expected to accept their alternative flight itineraries, regardless of delay, due to their higher flexibility in terms of departure times in comparison with business travellers (Alderighi et al. 2016). ...
Article
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Commercially-acquired drones threaten airport operations due to limited knowledge of airspace safety regulations or deliberate action by drone operators. This study aims to determine whether the investment cost of a drone-defence system can be justified in relation to the financial cost of a drone-related shutdown. To that end, a case study of Frankfurt Airport is carried out with simulations of different disruptions during a peak-activity period similar to the 2018 Gatwick drone incident. With data on passenger traffic and airline schedules, we developed a passenger recovery algorithm to determine the amount of delays caused by the disruptions and the costs for the airport operator and the airlines. Results show that the investment in a drone-defence system is offset by the costs of a 48-h continued closure or several smaller closures, but since the largest share of costs is borne by the airlines, investments should be shared between both stakeholders.
... Some criteria for intertemporal price discrimination involve the degree of patience (Su, 2007) and the nature of the customer, business or leisure (Alderighi, Nicolini, & Piga, 2016). For instance, Su (2007) considers a heterogeneous population of both myopic and strategic consumers. ...
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... Empirical studies from the airline industry show that low-cost carriers employ intertemporal price changes to profitably exploit customers' heterogeneity (Gaggero, 2010;Alderighi et al., 2015Alderighi et al., , 2016. This strategy in particular allows to charge higher fares close to departure when price-insensitive business travelers usually turn up for booking. ...
Article
Full-text available
We study empirically the price dynamics in the long-distance bus market using posted fares by Flixbus, the market leader in Europe. We find that, at a given point in time, the fare increases with the number of sold seats. This result largely explains, why the lowest available fare increases as the departure date approaches. No evidence is found in favor of intertemporal price discrimination, probably because of low consumer-heterogeneity throughout the entire booking period that characterizes the long-distance bus market.
... Such pricing patterns may vary with weekdays, seasons, and modes of transport (e.g. Alderighi, Nicolini, & Piga, 2016;Cosguna, Ekinci, & Yanık, 2014). ...
Article
Full-text available
HIGHLIGHTS : • The study uniquely explores individual tourists' temporal planning and flexibility. • One third of the tourists has a flexible travel schedule. • Tourists with own vehicle are associated with longer stays. • Outdoor recreation and landscape sightseeing are associated with longer stays. • Tourists with flexible schedules are more concerned with weather forecast. - - - - - - - - - - - - - - - - - - - - - - - - This article explored length of stay (LOS) in the context of tour planning, to assess as to whether LOS can be increased. LOS is an important parameter for tourism destination management, at the same time as evidence have suggested that LOS is declining on a global scale. The study was based on responses from 1592 foreign leisure travellers in south-western Norway, a region dominated by round-trips. The study uniquely explored aspects that influenced visitor planning of length of stay, finding that perceptions of time ‘needed’ for desired activities is the most important aspect of holiday duration planning, followed by limitations in the number of vacation days, holiday budgets and accommodation-related considerations. Visitors with a focus on the region, those with their own vehicles and those emphasising outdoor recreation and/or landscape sightseeing were likely to have longer stays. Findings suggested that destinations have potential to increase LOS. The paper additionally reflected on how identification of tourist segments with flexible time frames can contribute to destination management focused on LOS.
... Using this portion of the dataset allows the identification of those establishments that adopted the new discount tool (revealed if the full price is higher than the offered price). Similar to many dynamic pricing studies, the web-crawler operated daily using specific intervals between the date of query and the date of stay (Abrate et al., 2012;Alderighi et al., 2016;Fleischer, 2012). For a specific "room-establishment-date of stay" combination the crawler retrieved the above data by repeating the queries during an interval, the booking period, ranging between 70 days prior to the date of stay and one day before the date of stay. ...
Article
The extensive use of online travel agencies by hotels and their guests has amplified the number of consumers who directly experiment, appraise, and evaluate how dynamic pricing is implemented by hotels. Using data retrieved from an online travel agency, we trace how room rates change according to booking day, week of stay, and room type; and we build two measures of consumer perception of price fairness based on the customer evaluation of their stay at the hotel. We find that dynamic pricing has a negative effect on price fairness: differences in the room rate among the weeks of stay and among room types are major drivers of falls in price fairness, while changes during the booking period are more tolerated by consumers.
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Virtual interlining, which covers the actively marketed or ‘non-hidden’ segment of all potential self-connecting flight itineraries, is often assumed to be a money-saving travel strategy. In this paper we assess the price difference between virtual interlined and ‘traditional’ flight itineraries within the intra-European airport network. We query Kiwi.com's recently developed Tequila platform, one of the few specialised online travel agencies (OTAs) offering both ‘traditional’ and virtual interlined flight itineraries, to obtain information on all available flights in the first week of August, October and December 2019. Using a series of sign tests, we investigate whether a statistically significant fare difference exists between the cheapest available (direct and/or indirect) ‘traditional’ and virtual interlined flight itineraries. Our results indicate a statistically significant fare difference between the cheapest indirect ‘traditional’ and the virtual interlined flight itineraries in favour of the latter. However, with regard to direct traditional flight itineraries the results are mixed. We explore the size and the scope of these patterns in more detail, and outline possible avenues for further research.
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The application of price hedonic theory in the hotel pricing domain has relatively ignored the destination and country-level differences. We compare hotel rents across tourist and non-tourist destinations for an emerging (India) and a developed (USA) market. Utilizing multiple regression on a combined dataset of 21,904 data points spread over 2458 unique hotels, we show that the nature of destination and market moderates the association between hotel attributes and rents. Further, the results show that hotels at tourist destinations enjoy a rent premium across markets. However, this rent premium is positively associated with star rating, only in emerging markets, and is stable in developed markets. We contribute to price hedonic theory by proposing destination and market variables as moderators. Globalization and industry concentration make location decisions recurring and flexible. The study aims to help hotel managers by providing a contextual framework for making these strategic investment decisions.
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We present evidence on the dynamic pricing strategies of airlines. We collect high-frequency price and load-factor data directly from the websites of the main players for one of the busiest flight corridors in the US. Using this information we characterize the determinants of pricing decisions. Our focus is on the role that competition plays in these decisions. We show that prices for some airlines are responsive to rival prices and load factors. Specifically, we find that even after controlling for the number of days remaining until the flight and the number of seats remaining, some airlines increase their prices as their rivals' available seats disappear.
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This paper examines mergers that lead to an almost immediate replacement of the target firm's business model in favor of that of the acquiring firm. We examine the post‐merger behavior of the two leading European dedicated low‐cost airlines, EasyJet and Ryanair, each acquiring another low‐cost airline, Go Fly and Buzz, respectively. We find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of intertemporal price schedules used on the acquired routes, with early booking fares noticeably reduced and only very late booking fares increased. The analysis suggests that the takeovers had a net beneficial effect for consumers, at least in price terms, as a consequence of the introduction of the acquiring firms' business models and associated yield management pricing systems.
Article
Based on two strands of theoretical research, this paper provides new evidence on how fares are jointly affected by in-flight seat availability and purchasing date. As capacity-driven theories predict, it emerges that fares monotonically and substantially increase with the flights occupancy rate. Moreover, as suggested in the literature on intertemporal price discrimination, the adoption of advance purchase discounts is widespread as the departure date nears, but it may be part of a U-shaped temporal profile, where discounts are preceded by periods of relatively higher fares. Finally, the intervention of yield management analysts appears to play a substantial role.
Article
Undoubtedly, low‐cost operation has been a very successful business model in the airline industry. Over the past 5 years, there has been a widespread departure from the original low‐cost model introduced by Southwest Airlines. The low‐cost carriers tended to follow a differentiation strategy as opposed to cost leadership on which the original low‐cost model was based. The objective of this paper is to assess the degree by which the original low‐cost model has been modified over the years, and to ascertain whether the degree of adherence to the original model has any impact on the profit level of low‐cost airlines. The performance and business models of ten longer‐established US and European low‐cost carriers are analysed and evaluated against the original model of Southwest Airlines. Analysis indicates that although an increasing number of ‘hybrid’ low‐cost models are achieving low operating costs, offering low fares and returning attractive operating profit margins, there is a case for recommending adherence to the original model to ensure greater profitability.
Article
Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. A fortiori, this implies a monotonically increasing temporal profile of fares. In this paper, we exploit the presence of drops in offered fares over time as an indicator of an active yield management intervention by two main European Low-Cost Carriers observed daily during the period June 2002 - June 2003. Our results indicate that yield management is effective in raising a flight's load factor. Furthermore, yield management interventions are more intense, and generate a stronger impact, on more competitive routes: one possible interpretation is that a reduction in competitive pressure allows the carriers to adopt a more standardized approach to pricing. Similarly, we find that yield management interventions are more effective in raising the load factor on routes where the customer mix is more heterogenous (i.e., it includes passengers traveling for leisure, business and for family matters). On markets with homogeneous customer base, no robust yield management effect was observed.
Article
Through analyses of audience reception of U.S.-produced feature film projects from the period 2000–2003, I develop insight into the trade-off assumed in organizational ecology theory between an organization's niche width and its fitness. This assumption, termed the principle of allocation, holds that the greater the diversity in regions of resource space targeted by an organization, the lower the organization's capacity to perform well within them. Using data at both the professional critic and consumer levels, I demonstrate the empirical validity of this principle: films targeting more genres attract larger audiences but are less appealing to those audience members. Moreover, I find that audiences' perceptions of a film's fit with targeted genres drive this trade-off, as multi-genre films are difficult for audiences to make sense of, leading to poor fit with tastes and lowered appeal. These findings highlight the key role audiences' perceptions play in the trade-offs associated with different niche strategies.
Article
This paper analyzes the question of whether Ryanair's pricing strategies have changed over time. We create a panel dataset of fares for all of Ryanair's European flights over a two-year period, from 1 January 2006 to 31 December 2007. We calculate the average fare over a 90-day period prior to departure and the intensity of dynamic pricing for each flight in the panel, in particular analysing the changes in these variables observed between pairs of “equivalent” flights. Our results show that overall, both average fares and the intensity of dynamic pricing decreased in 2007. More than one-third of flights saw a price reduction of more than 10%. Now that it has become the dominant low-cost carrier in Europe, Ryanair appears to be softening its dynamic pricing activities on existing routes, typically employed to stimulate additional touristic demand. Thus, booking in advance becomes relatively more expensive.
Article
Following the success of budget airlines in Australia, regulatory barriers were eased elsewhere in Asia Pacific to allow the proliferation of low-fare airlines (LFAs). The aim of this paper is to assess whether the profit and growth potential of Asian LFAs are hampered not just by remaining regulatory barriers but also by the embedded revenue and cost advantages of their full fare rivals. The LFAs business model can survive and succeed in Asia so long as these companies can ensure an even lower operating cost than their already cost-efficient full-service rivals. LFAs based in low-income countries with a relative lack of viable land transport infrastructure (e.g. Malaysia) are likely to achieve the greatest market stimulation.
Article
We consider a problem of dynamically pricing a single product sold by a monopolist over a short time period. If demand characteristics change throughout the period, it becomes attractive for the company to adjust price continuously to respond to such changes (i.e., price-discriminate intertemporally). However, in practice there is typically a limit on the number of times the price can be adjusted due to the high costs associated with frequent price changes. If that is the case, instead of a continuous pricing rule the company might want to establish a piece-wise constant pricing policy in order to limit the number of price adjustments. Such a pricing policy, which involves optimal choice of prices and timing of price changes, is the focus of this paper.We analyze the pricing problem with a limited number of price changes in a dynamic, deterministic environment in which demand depends on the current price and time, and there is a capacity/inventory constraint that may be set optimally ahead of the selling season. The arrival rate can evolve in time arbitrarily, allowing us to model situations in which prices decrease, increase, or neither. We consider several plausible scenarios where pricing and/or timing of price changes are endogenized. Various notions of complementarity (single-crossing property, supermodularity and total positivity) are explored to derive structural results: conditions sufficient for the uniqueness of the solution and the monotonicity of prices throughout the sales period. Furthermore, we characterize the impact of the capacity constraint on the optimal prices and the timing of price changes and provide several other comparative statics results. Additional insights are obtained directly from the solutions of various special cases.
Article
The history of entry and exit by low-cost carriers in Australia is outlined; two phases of entry are identified, the early 1990s, and the year 2000. The factors influencing success or failure are examined in the light of experience in North America and Europe. The strategies adopted by the low-cost carriers are examined, as are the competitive responses of the incumbents. The impacts made by low-cost carriers on fares, costs and profitability are examined and lessons are drawn from the experience. The likely patterns of competition between Virgin Blue and Qantas are explored along with the scope for more entry.
Article
Theoretical models of spatial product differentiation indicate that firms face two opposing incentives: (1) minimize differentiation in order to “steal” customers from competitors, and (2) maximize differentiation in order to reduce price competition. Using data on U.S. airline departure times from 1975, when fares were regulated, and 1986, when fares were not regulated, we empirically estimate the effect of competition on differentiation. We find a negative relationship in both periods. In 1986, however, reductions in exogenous scheduling constraints increase differentiation, implying that firms may be differentiating their products where possible to reduce price competition. This effect is not apparent in the 1975 data.
Article
We analyse the pricing policy adopted by Ryanair, the main low-cost carrier in Europe. Based on a year's fare data for all of Ryanair's European flights, using a family of hyperbolic price functions, the optimal pricing curve for each route is estimated. The analysis shows a positive correlation between the average fare for each route and its length, the frequency of flights operating on that route, and the percentage of fully booked flights. As the share of seats offered by the carrier at the departure and destination airports increases, fares tend to decrease. The correlation of dynamic pricing to route length and the frequency of flights is negative. Conversely, as competition increases discounts on advance fares rise.
Article
The practice of dynamic pricing, so typical of low cost carriers, is generally regarded as a form of price discrimination between “leisure” and “business” travellers on the single flight or on the single route. Across different routes, however, things may go differently. If price increases in the last 15 days prior to departure are meant to discriminate business demand, leisure demand should account for earlier price variations. Working on a database including the daily fare over the 3 months prior to each flights operated by easyJet during 2009, we assign to each route its own “leisure index”, defined as the difference between the rate of price change during the ninety days prior to departure and the one during the last 15 days. Empirical results can be summarized by saying that “business” routes have lower average prices per kilometre, while “leisure” routes show a less dynamic price behaviour, with higher minimum prices and lower maximum prices per kilometre.
Article
This paper presents a new form of online pricing tactic where airlines post, at the same time and for the same flight, fares in different currencies that violate the law of One Price. Unexpectedly for an online market, price dispersion may be accompanied by a hidden discount that tends to persist in the period preceding a flight’s departure. The econometric analysis reveals that airlines post dispersive fares in less competitive routes with more heterogeneous demand. Furthermore, temporal persistence of intra-firm fare dispersion suggests that it is an equilibrium phenomenon engendered by the airlines’ need to manage stochastic demand conditions for a specific flight
Article
When capacity is costly and prices are set in advance, firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price. I show that the optimal price strategy of a monopolist and the unique pure-strategy Nash equilibria of oligopolists both exhibit intrafirm price dispersion. Moreover, as the market becomes more competitive, prices become more dispersed, a pattern documented in the airline industry. While generating similar predictions, the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers.
Article
Traditional peak-load and stochastic peak-load models assume firms have prior information about when peak demand occurs. However, price dispersion, such as is typically used by firms practicing yield management, can achieve some of the same efficient demand shifting even when the peak time is unknown. Equilibrium price dispersion arises because of stochastic demand and price rigidities, but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting. The model also suggests how yield management (now more commonly called revenue management) might actually benefit business travellers, contrary to the popular prejudice.
Article
Optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied. The existence of capacity constraints means that in order to expand outp ut the airline must divert demand from the peak period to the off-peak period. A particular advance-purchase discount policy is shown to be the profit-maximizing method of selling tickets. If the advance-purchase requirement were infeasible, output and total surpl us would both be lower. Copyright 1993 by American Economic Association.
Ryanair and the Low-cost Revolution Air Transport in the 21st Century: Key Strategic Developments
  • Sd Barrett
Barrett SD. 2011. Ryanair and the Low-cost Revolution, in J. F. O'Connell, G. Williams, Air Transport in the 21st Century: Key Strategic Developments. Chp. 3, 113-128.
Air Transport in the 21st Century: Key Strategic Developments
  • S D Barrett
Barrett SD. 2011. Ryanair and the Low-cost Revolution, in J. F. O'Connell, G. Williams, Air Transport in the 21st Century: Key Strategic Developments. Chp. 3, 113-128.
Has Ryanair's pricing strategy changed over time? An empirical analysis of its
  • P Malighetti
  • S Paleari
  • R Redondi
Malighetti P, Paleari S, Redondi R. 2010. Has Ryanair's pricing strategy changed over time? An empirical analysis of its 2006-2007 flights, Tourism Management, 31: 36-44.