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Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier

Author

Listed:
  • Xavier Fageda

    (Faculty of Economics, University of Barcelona)

  • Juan Luis Jiménez

    (Universidad de Las Palmas de Gran Canaria)

  • Jordi Perdiguero

    (Faculty of Economics, University of Barcelona)

Abstract

Competition in airline markets may be tough. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive in less dense routes and shorter routes.

Suggested Citation

  • Xavier Fageda & Juan Luis Jiménez & Jordi Perdiguero, 2010. "Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier," IREA Working Papers 201007, University of Barcelona, Research Institute of Applied Economics, revised Mar 2010.
    • Handle: RePEc:ira:wpaper:201007
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    References listed on IDEAS

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    Cited by:

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    2. Ofelia Betancor & Juan Luis Jiménez, 2011. "When trains go faster than planes: the strategic reaction of airlines in Spain," ERSA conference papers ersa11p295, European Regional Science Association.
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    6. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter-Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, 01.
    7. Bergantino, Angela S. & Capozza, Claudia & Capurso, Mauro, 2015. "The impact of open access on intra- and inter-modal rail competition. A national level analysis in Italy," Transport Policy, Elsevier, vol. 39(C), pages 77-86.
    8. Soyk, Christian & Ringbeck, Jürgen & Spinler, Stefan, 2021. "Effect of long-haul low-cost carriers on North Atlantic air fares," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 152(C).
    9. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter‐Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, January.
    10. Kuljanin, Jovana & Kalić, Milica & Begović, Boris & Mijović, Nemanja & Renold, Manuel, 2021. "The effect of LCC market entry on dominant FSC's price into long haul sector: A case of Norwegian competition on British Airways' prices on selected transatlantic routes," Journal of Air Transport Management, Elsevier, vol. 91(C).
    11. Miyoshi, Chikage & Rubio Molina-Prados, Jesus, 2022. "Measuring the impact of long-haul low-cost carriers on lowering fares: A quasi-experimental design to assess the pre-COVID market," Transport Policy, Elsevier, vol. 128(C), pages 52-64.
    12. Tsai, Tsung-Hsien, 2016. "Homogeneous service with heterogeneous products: Relationships among airline ticket fares and purchase fences," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 164-175.
    13. Wang, Kun & Tsui, Wai Hong Kan & Li, Lan-Bing & Lei, Zheng & Fu, Xiaowen, 2020. "Entry pattern of low-cost carriers in New Zealand - The impact of domestic and trans-Tasman market factors," Transport Policy, Elsevier, vol. 93(C), pages 36-45.
    14. Delbari, Seyyed Ali & Ng, Siew Imm & Aziz, Yuhanis Abdul & Ho, Jo Ann, 2016. "An investigation of key competitiveness indicators and drivers of full-service airlines using Delphi and AHP techniques," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 23-34.
    15. Castillo-Manzano, José I. & López-Valpuesta, Lourdes & Pedregal, Diego J., 2012. "What role will hubs play in the LCC point-to-point connections era? The Spanish experience," Journal of Transport Geography, Elsevier, vol. 24(C), pages 262-270.
    16. Cui, Qiang, 2019. "The online pricing strategy of low-cost carriers when carbon tax and competition are considered," Transportation Research Part A: Policy and Practice, Elsevier, vol. 121(C), pages 420-432.
    17. Bogdan AVRAM, 2017. "The Hybrid Airline Model. Generating Quality for Passengers," Expert Journal of Business and Management, Sprint Investify, vol. 5(2), pages 149-154.

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    Keywords

    Airlines; competition; low-cost carriers JEL classification:L13; L59; L71;
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