An analysis of price competition and price wars in Australia's domestic airline market. (September 2019)

• Record Type: Journal Article
• Authors: Ma, Wenliang; Wang, Qiang; Yang, Hangjun; Zhang, Yahua
• Is Part Of: Transport policy. Volume 81(2019)
• Page Start: 163
• Page End: 172
• Publication Date: 2019-09
• Subjects: Price wars -- Australian airline market -- Multimarket contact -- Full-service airlines -- Low-cost carriers; Transportation and state -- Periodicals; Transportation -- Rates -- Periodicals; 388
• DOI: 10.1016/j.tranpol.2019.06.008
• Languages: English
• ISSNs: 0967-070X

Abstract

Abstract: Price cuts and price wars, a frequent phenomenon in Australia's domestic airline market that have been widely reported in the Australian news media, are documented in this research. This paper examines the determinants of price wars in Australia using monthly data from 72 airline routes for the period from January 2013 to August 2017. Our finding is consistent with the widely held view that an increase in the major airlines' capacity was a main cause of price cuts and price wars. Our research shows that price wars continued after Qantas announced that it would stop adding domestic capacity and give up defending its 65% market share policy in 2015. Indeed, Qantas' 65% market share commitment has led to fierce pricing competition and the occurrence of price wars. Multimarket contact promoted price wars in Australia's domestic airline market. Highlights: This paper examines the determinants of airline price wars in Australia using monthly data. An increase in the major airlines' capacity was a major cause for price cuts and price wars. Price wars continued after Qantas announced that it would stop adding capacity. Qantas' 65% market share commitment has led to fierce pricing competition and the occurrence of price wars.