1180 | 64 | Service-quality and pricing strategies in the airline industry: The role of distance | Xavier Fageda & Ricardo Flores Fillol
This paper proposes a theoretical setup along with an empirical application related to the airline industry to analyze the service quality and pricing decisions of carriers. These decisions depend crucially on route distance, as only short-haul routes are affected by intermodal competition. This additional source of competition explains the positive effect of distance on flight frequencies, as airlines can attract more demand and boost profits by increasing service quality. Fares also follow the same pattern because longer routes are more costly to operate, but also because a higher service quality entails a certain “product upgrade” that translates into a higher passenger willingness to pay. Finally,_x000D_
the intensity of these effects differs between network and low-cost carriers, yielding an increased differentiation between them as the route distance rises. However, the presence of intermodal competition on short-haul routes acts as a brake on this observed differentiation._x000D_
Xavier Fageda & Ricardo Flores Fillol
Universitat de Barcelona & Universitat Rovira i Virgili
ID Abstract: 64