Pricing dynamics between airline groups with dual-brand services: the case of the Australian domestic market

Zhang, Yahua and Sampaio, Breno and Fu, Xiaowen and Huang, Zhibin (2018) Pricing dynamics between airline groups with dual-brand services: the case of the Australian domestic market. Transportation Research Part A: Policy and Practice, 112. pp. 46-59. ISSN 0965-8564

Abstract

The Australian aviation industry achieved substantial growth after the abolition of the 'two-airline-policy' in 1990. With Virgin’s purchase of Tiger Airways, a new duopoly between two airlines groups, each consisting of a full service airline (FSA) and a low cost carrier (LCC), emerged in the domestic market. In this study, we analyze the pricing dynamics among the four airlines of the duopoly groups, using panel data of online fares on the four most densely travelled routes in the domestic market. Our empirical results suggest that market segmentation allows the FSAs to charge significantly higher prices than the LCCs. Still, there is clear evidence of competition within and across the market segments, and the airlines’ pricing responses are asymmetric. Virgin’s price responses to Qantas and Jetstar are moderate. In comparison, more than one third of Qantas’s fare changes and less than half of Jetstar’s fare changes are in response to Virgin’s fare adjustments in the previous period. Despite Qantas and Jetstar’s large market share, after lengthy and costly price wars in previous years, the Qantas group still responds to Virgin as if competing with an entrant. All four carriers adopt revenue management practices, but the pricing of Qantas and Jetstar does not seem to be coordinated. Our study identifies a complex competition pattern between airline groups offering dual-brand services, and suggests that the Australian domestic market has not reached a stable equilibrium.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to Published version, in accordance with the copyright policy of the publisher.
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 18 Jan 2019 05:53
Last Modified: 24 Jan 2019 05:08
Uncontrolled Keywords: Australian domestic market; airline pricing; competition
Fields of Research : 15 Commerce, Management, Tourism and Services > 1507 Transportation and Freight Services > 150701 Air Transportation and Freight Services
14 Economics > 1402 Applied Economics > 140217 Transport Economics
Socio-Economic Objective: B Economic Development > 88 Transport > 8803 Aerospace Transport > 880302 Air Passenger Transport
Identification Number or DOI: 10.1016/j.tra.2018.01.006
URI: http://eprints.usq.edu.au/id/eprint/34807

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