A time series analysis of the pricing behaviour of directly competitive 'low cost' airlines

Abstract

This article discusses the competitive pricing behavior of airlines. The author collects data by route for cases where more than one airline is in direct competition. Data on fares is obtained from the Internet for two airlines with competing services to Alicante, Prague, and Malaga, departing from Nottingham East Midlands Airport in the United Kingdom, for the six working weeks up to and including the actual departure date. These data represent leisure traffic. The author also selected 2 domestic business destinations to illustrate price competition on business demand, where departure times were within a maximum of 20 minutes of each other; the author also compared competing services from London Gatwick (LGW) airport. The author concludes that one of the airlines studied is operating more characteristically as a low-cost carrier than the other. The influence of past fares is higher than the influence of the competitor's fares in one leisure travel case. The other leisure case suggests that the correlation between the series is more important than correlation within the series. The author sums up that it seems likely that each airline is preoccupied by the process of yield management and it is only through this that a competitor's fare offerings indirectly influence their behavior.