Market expansion, cannibalization, and international airline pricing strategy

Gregory S. Carpenter*, Dominique M. Hanssens

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

16 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)313-326
Number of pages14
JournalInternational Journal of Forecasting
Volume10
Issue number2
DOIs
StatePublished - Sep 1994

Keywords

  • Air travel
  • Market response
  • Optimization
  • Pricing

ASJC Scopus subject areas

  • Business and International Management

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