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Competition in the European aviation market: the entry of low-cost airlines

Marco Alderighi, Alessandro Cento, Peter Nijkamp and Piet Rietveld

Journal of Transport Geography, 2012, vol. 24, issue C, 223-233

Abstract: This paper investigates the price-setting behavior of full-service airlines in the European passenger aviation market. 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 empirical findings substantially confirm the propositions of the theoretical model. We find that competition among full-service carriers appears to affect the price levels of the business and the leisure segments asymmetrically: there are small reductions in the leisure segments and significant reductions in the business segment of the aviation market. In contrast, competition with low-cost carriers reduces both the business and leisure fares of full-service carriers quite uniformly, with an emphasis on the mid-segment fares.

Keywords: Pricing strategies; Yield management; Low-cost carriers; European airline market (search for similar items in EconPapers)
Date: 2012
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