Share shift and airport substitution in origin-destination markets with low-cost entrants

Robert M. Emrich and Frederick H. deB. Harris

International Journal of Revenue Management, 2008, vol. 2, issue 2, 109-122

Abstract: In deciding pricing responses to the entry of Low-Cost Competitors (LCCs), revenue managers at incumbent airlines find it crucial to estimate accurately the market demand stimulation available at reduced price points. Traffic apparently stimulated by the entry of an LCC is often diverted from substitute airports. In such settings, the relative quality of service often changes with fuller planes and more stringent capacity controls but increased nonstop flight frequency. As a result, market share can shift radically as air travellers of particular types choose among the new price-quality offerings. This paper illustrates how an airline can address these issues in the execution of optimal Revenue Management (RM) solutions.

Keywords: airlines; demand estimation; revenue management; RM; low-cost competitors; LCCs; airport substitution; quality of service; QoS; market share; market demand. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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