Airline Price Competition: A Time Series Analysis of 'Low-Cost' Carriers

David Edward Pitfield ()

ERSA conference papers from European Regional Science Association

Abstract: This paper, after providing an introduction to the operating context of low cost carriers in Europe, examines the competitive pricing behaviour of airlines. Data is collected by route for cases where more than one airline is in direct competition. Data on fares is obtained from the internet for two airlines with competing services to Alicante, Prague and Malaga, departing from Nottingham East Midlands Airport in the UK, for the six working weeks up to and including the actual departure. These destinations represent leisure traffic. Two domestic business destinations were also selected to illustrate price competition on business demand where departure times were within a maximum of 20 minutes of each other and a further examination of competing services from London Gatwick (LGW) was made. Cross Correlation Analysis is used to examine whether, subject to a variety of lags, the prices offered by one airline can be seen to be both correlated with the other price series and to lead it. This provides some insight into the pricing strategy adopted by the competitors. Autocorrelation Functions (ACFs) and Partial Autocorrelation Functions (PACFs) can also be produced on the prices offered by each airline. These suggest the nature of the ARIMA model that can be fitted to the series and these models can show the degree to which series values are correlated with their own past values and whether a reasonable model could be based on an ARIMA approach. The relative strength of these two relationships is examined; are prices more closely explained by the competitor's actions or the airlines own past price setting?

Date: 2004-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-geo, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www-sre.wu.ac.at/ersa/ersaconfs/ersa04/PDF/680.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa04p680

Access Statistics for this paper

More papers in ERSA conference papers from European Regional Science Association Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by Gunther Maier ().