Citation:
Scotti D, Volta N, Price asymmetries in European airfares, Economics of Transportation, Volume 14, June 2018, Pages 42-52
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.