Price asymmetries in European airfares. (June 2018)

• Record Type: Journal Article
• Authors: Scotti, Davide; Volta, Nicola
• Is Part Of: Economics of transportation. Volume 14(2018)
• Page Start: 42
• Page End: 52
• Publication Date: 2018-06
• Subjects: Airlines -- Price asymmetry -- Pass-through rate -- Fuel cost; L11 -- L93 -- R41; Transportation -- Periodicals; 388.049
• DOI: 10.1016/j.ecotra.2018.02.002
• Languages: English
• ISSNs: 2212-0122

Abstract

Abstract: This research analyses airlines' pricing decisions in response to changes in the market conditions. We estimate the effects of jet fuel price changes on European airfares at airline/route level by discriminating on the grounds of supplied capacity and markets' competitive structure. Our results show that airlines tend to adjust fares asymmetrically following a "rocket and feather" behaviour. The asymmetric pricing is marked in periods of decreasing capacity when the increases of fuel price are passed at a higher degree than fuel cost savings. In contrast, when capacity increases the asymmetry is lowered. Moreover, we show that highly competitive markets are characterized by a lower price asymmetry compared to low competition markets. Finally, our results show that airline price asymmetry reaches its maximum when capacity is reduced and competition is low. Highlights: The paper analyses airlines' pricing decisions in response to fuel price changes. Airlines adjust fares asymmetrically according to a "rocket and feather" behaviour. Prices are adjusted faster in case of increasing fuel prices. The higher the competition the lower the positive asymmetry. Combinations of capacity change and market competition affect the asymmetry level.