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Paying for Status? - The effect of frequent flier program member status on air fare choice

Nathalie C. McCaughey and Christiaan Behrens

No 04-11, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Frequent flier programs (FFPs) are said to affect airline customer behaviour such that revenue of sponsoring airlines increases. To this end prior research relies on assumptions of competition, lock-in effects and variations in scale and scope of FFPs. Whether a FFP by itself induces a price premium remains unanswered. In an effort to shine some light on this question, we apply discrete choice analysis to a new proprietary data set of actual frequent flier member flight behaviour (fares paid, FFP points received) over a 12-months period. We take advantage of the variations in the structure of FFPs (Gold, Silver and Bronze tier levels), to assess both the existence of a FFP price premium and the price premiums average monetary value in US$ per FFP member. Our findings suggest that FFP members are willing to pay a price premium of up to six percent, which is directly attributable to the FFP.

Keywords: discrete choice analysis; loyalty programs; relationship marketing; price premium; frequent flier program; CRM (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-06
New Economics Papers: this item is included in nep-dcm
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