The effects on tourism of airfare subsidies for residents: The key role of packaging strategies |
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| Institution: | 1. Institute for Transport and Development, School of International Business, University of Applied Sciences, Werderstrasse 73, 28199, Bremen, Germany;2. Department of Economics, Monash University, Clayton Victoria, 3800, Australia and School of Business and Tourism, Southern Cross University, Australia;3. Centre for Logistics and Supply Chain Management, University of Luxembourg, L-1511, Luxembourg;1. Department of Transport and Planning, University of Westminster, 35 Marylebone Road, London NW1 5LS, United Kingdom;2. The Innaxis Foundation and Research Institute, Calle de José Ortega y Gasset, 20, 28006, Madrid, Spain |
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| Abstract: | Airfare subsidies for residents in remote tourism destinations can negatively affect the local tourism industry. In this paper, we study the effects of airfare subsidies on a remote region's tourism sector with a theoretical model of air transport and tourism service transactions involving a remote tourism region, the rest of the country and the rest of the world. We show that firms' widespread packaging strategies in tourism markets, i.e. selling tourism packages composed of air transport and tourism services at a single price, acts as hidden price discrimination, since the packages are cheaper than buying the services separately. Thus, in the presence of higher airfares due to a subsidy, the tourists not entitled to the subsidy have incentives to switch to a cheaper alternative, namely tourism packages. Consequently, a packaging strategy can lessen or even avoid the negative impacts of the subsidy on a region's tourism sector. |
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| Keywords: | Airfare subsidies for residents Tourism industry Remote tourism region Packaging |
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