Pricing dynamics between airline groups with dual-brand services: The case of the Australian domestic market

Yahua Zhang, Breno Sampaio, Xiaowen Fu, Zhibin Huang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

7 Citations (Scopus)

Abstract

The Australian aviation industry achieved substantial growth after the abolition of the “two-airline-policy” in 1990. With Virgin's purchase of Tiger Airways, a new duopoly between two airlines groups, each consisting of a full service airline (FSA) and a low cost carrier (LCC), emerged in the domestic market. In this study, we analyze the pricing dynamics among the four airlines of the duopoly groups, using panel data of online fares on the four most densely travelled routes in the domestic market. Our empirical results suggest that market segmentation allows the FSAs to charge significantly higher prices than the LCCs. Still, there is clear evidence of competition within and across the market segments, and the airlines’ pricing responses are asymmetric. Virgin's price responses to Qantas and Jetstar are moderate. In comparison, more than one third of Qantas's fare changes and less than half of Jetstar's fare changes are in response to Virgin's fare adjustments in the previous period. Despite Qantas and Jetstar's large market share, after lengthy and costly price wars in previous years, the Qantas group still responds to Virgin as if competing with an entrant. All four carriers adopt revenue management practices, but the pricing of Qantas and Jetstar does not seem to be coordinated. Our study identifies a complex competition pattern between airline groups offering dual-brand services, and suggests that the Australian domestic market has not reached a stable equilibrium.

Original languageEnglish
Pages (from-to)46-59
Number of pages14
JournalTransportation Research Part A: Policy and Practice
Volume112
DOIs
Publication statusPublished - 1 Jun 2018
Externally publishedYes

Keywords

  • Airline pricing
  • Australian domestic market
  • Competition

ASJC Scopus subject areas

  • Civil and Structural Engineering
  • Transportation
  • Management Science and Operations Research

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