Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier |
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Authors: | Xavier Fageda Juan Luis Jiménez Jordi Perdiguero |
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Institution: | a Department of Economics Policy, Research Group on Governments and Markets (GIM-IREA), Universitat de Barcelona Av. Diagonal 690, 08034 Barcelona, Spain b Department of Applied Economics, Research Group on Infrastructures and Transport Economics (EIT), Universidad de Las Palmas de Gran Canaria, Campus de Tafira, 35017 Las Palmas, Spain |
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Abstract: | In the post-liberalization period, competition has increased in airline markets. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive on less dense routes and shorter routes. |
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Keywords: | Airlines Competition Low-cost carriers |
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