Loyalty rewards and redemption behavior: Stylized facts for the U.S. airline industry
Alexander Luttmann and
Daniel Ladd
MPRA Paper from University Library of Munich, Germany
Abstract:
Over the past forty years, one of the most important datasets in industrial organization has been the Airline Origin and Destination Survey (DB1B). Most studies relying on these data remove tickets with fares less than $20, assuming that these are heavily discounted frequent flyer awards (FFAs). We investigate the validity of this approach by first defining the size of the frequent flyer market using annual Form 10-K filings. Exploiting a federal regulation, we then outline a novel approach to identify FFAs in the DB1B. Our method indicates that the $20 cutoff used by researchers is too high and may be lowered to $12 for tickets appearing in the DB1B after February 1, 2002. Using the FFAs we identify, we show how the characteristics of award tickets differ from paid tickets and how these characteristics have changed over time. We then demonstrate how various market and product quality characteristics influence the share of passengers traveling on FFAs. Finally, we find that price dispersion increases on routes with higher shares of frequent flyer passengers, implying that airline loyalty programs enhance market power.
Keywords: Airlines; competition; loyalty rewards; frequent flyer tickets; product quality (search for similar items in EconPapers)
JEL-codes: L11 L13 L14 L93 M31 R40 R49 (search for similar items in EconPapers)
Date: 2023-11-21
New Economics Papers: this item is included in nep-com, nep-ind, nep-reg and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/119214/2/MPRA_paper_119214.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/119738/10/MPRA_paper_119738.pdf revised version (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:pra:mprapa:119214
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().