Service-quality and pricing strategies in the airline industry: The role of distance

Article  -  Monday, 4 November 2024

Fageda, X. and Floes-Fillol, R. (2024): "Service-quality and pricing strategies in the airline industry: The role of distance", Economics of Transportation

This paper analyzes airlines' fare and frequency decisions, both theoretically and empirically. These decisions depend on route distance, as only short-haul routes are affected by intermodal competition from personal transportation. Although fares increase with distance both on short- and long-haul routes, the effect of distance on frequencies depends on the presence of intermodal competition.

Frequencies decay with distance on long-haul routes. However, on short-haul routes, frequencies increase with distance because airlines try to boost profits by attracting demand from other transportation modes. Finally, on short-haul routes, intermodal competition from personal transportation affects more intensively network carriers than low-cost carriers as distance rises, which produces an increased differentiation between both types of airlines.

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