TY - JOUR
T1 - Market expansion, cannibalization, and international airline pricing strategy
AU - Carpenter, Gregory S.
AU - Hanssens, Dominique M.
N1 - Funding Information:
The authors are grateful to Gerard Deloche, Agnes Gascoin, Dominique Gretz, and Philippe Marguier all of UTA, Paris, for their generous efforts in discussing airline pricing and for making data available, and to Leonard Parsons and Randall Schultz for helpful comments. Gregory Carpenter acknowledges the support of the Richard H. Clewett Professorship. Dominique Hans-sens acknowledges the support of the Robert Anderson Research Endowment.
PY - 1994/9
Y1 - 1994/9
N2 - We analyze market response and pricing of air travel on the Paris-Abidjan, Ivory Coast route operated by a French airline, Union des Transports Aeriens (UTA). We measure the impact of price on the overall size of the market, and examine the nature, pattern, and extent of cannibalization using a set of econometric models for overall passenger volume and for each fare class share. Our analysis shows that (1) only one class of fares expands the market; (2) cannibalization is very significant and highly asymmetric; (3) even small deviations from optimal prices substantially reduce profit. Based on these estimated models, we forecast demand for air travel and calculate optimal fares. We discuss how these models and results were used by UTA and the impact they had on pricing strategy.
AB - We analyze market response and pricing of air travel on the Paris-Abidjan, Ivory Coast route operated by a French airline, Union des Transports Aeriens (UTA). We measure the impact of price on the overall size of the market, and examine the nature, pattern, and extent of cannibalization using a set of econometric models for overall passenger volume and for each fare class share. Our analysis shows that (1) only one class of fares expands the market; (2) cannibalization is very significant and highly asymmetric; (3) even small deviations from optimal prices substantially reduce profit. Based on these estimated models, we forecast demand for air travel and calculate optimal fares. We discuss how these models and results were used by UTA and the impact they had on pricing strategy.
KW - Air travel
KW - Market response
KW - Optimization
KW - Pricing
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U2 - 10.1016/0169-2070(94)90010-8
DO - 10.1016/0169-2070(94)90010-8
M3 - Article
AN - SCOPUS:0002102203
SN - 0169-2070
VL - 10
SP - 313
EP - 326
JO - International Journal of Forecasting
JF - International Journal of Forecasting
IS - 2
ER -