The dynamics between price and demand of myopic and strategic consumers in the air transport industry

This thesis sheds light on the relationship between dynamic pricing strategies and consumer demand in the air transport industry. The work is structured around three main research questions, which explore revenue management implementation and the relative influence on consumers’ purchasing behavior. The first research question extends the literature on airline pricing strategies by investigating the presence of quantity price discrimination of a leading European low-cost carrier, finding evidence of a two-part tariff pricing structure in offered fares (i.e., airfares are composed by a fixed fee per reservation and a variable component of price). Interestingly, the application of this kind of strategy is not linear in volume and it generates quantity discounts. Quantity discounts do not substitute the typical pricing discrimination strategies implemented by airlines, rather they are an additional way in which airlines price discriminate consumers. Second, to have an overview of the effectiveness of implementing price discrimination strategies, passengers’ price elasticity of demand is investigated. Outcomes suggest that price elasticity of European low-cost passengers greatly varies across different dimensions (i.e., seasonality, booking and flight characteristics, and served markets). Specifically, price elasticity is higher for reservations made more days in advance, as well as for bookings and departures occurring at weekends. Moreover, flights taking off during lunchtime and in the summer period are characterized by more sensitive passengers with respect to other daily timings and during springtime. As a third step, since price variations are the main outcome of revenue management, their impact is quantified by considering an advanced measure of price volatility, which takes into account past and more recent price changes, as well as the predictability of fare changes over time. Empirical analyses reveal that with higher degrees of price volatility (above and beyond the predicted price trajectory), demand decreases coupled with a significant decrease in price elasticity. Intuitively, price volatility induces lower demand elasticity, whereby consumers may end up paying more, but possibly reducing the overall demand (given the higher price). This insight suggests the need to incorporate the effects of price volatility on consumers’ demand into the classical revenue management model (Expected Marginal Seat Revenue), demonstrating its potential implementation benefit, while capturing the potential harm caused by the presence of strategic consumers. Overall, this thesis gives new explanations on consumers’ behaviour and timing of their purchases: i) consumers’ knowledge of price discrimination strategies helps in their timing decision in order to pay a lower price; ii) acknowledging that only in markets where consumers are price sensitive it is beneficial to implement price drops, price elasticity estimates on different dimensions lead passengers to more easily identify the possibility that airlines plan price variations; and iii) consumers may take advantage of price fluctuations and wait for downward price adjustments

Connectivity and Network Robustness of European Integrators

Abstract Although redundancy is often associated with lower efficiency, redundant networks can provide integrators with the flexibility and capacity to respond to issues in the delivery network. This study analyzes the air transportation network strategies and robustness of the four largest European integrators, estimating the loss in connectivity when a node becomes unavailable. Accordingly, we develop a robustness index that accounts for the importance of airports in the network to each of the four main integrators, in terms of connections and freight capacity. The outcomes reveal that integrators operating within a hub-and-spoke type network are less resistant to network disruptions, while robustness is higher in less concentrated networks. The results highlight that integrators develop different network strategies to manage the trade-off between network efficiency and robustness, which may vary depending on the standardized or customized services expected by clients

Price volatility of revenue managed goods: Implications for demand and price elasticity

peer reviewedRevenue management practices are widely employed in various sectors. These mechanisms dynamically adjust prices observed by consumers typically through the control of price classes and their availability. As such, these pricing environments tend to exhibit some predictable behaviors as the product approaches the expiration or consumption date but may also result in varying degrees of price volatility. Such price paths may ultimately alter consumer behavior, e.g., via delayed purchase timing (i.e., strategic behavior) or different willingness to pay. Accordingly, we assess consumers’ responses to the realized price changes induced by revenue management mechanisms, using fare and sales data from aviation markets. Our empirical analyses reveal that price elasticity decreases (in absolute terms) in the degree of price volatility, whereas the realized demand is lower when price volatility is higher. This suggests that as prices become more volatile, consumers become more oblivious to these price fluctuations and may end up paying more for the products—thereby confirming and generalizing a behavior previously documented for consumer packaged goods (CPGs), which follow dramatically different pricing regimes. While this may suggest support for higher and more volatile prices, we find that given the higher prices, the overall demand decreases, highlighting a delicate trade-off firms face. To distill the insights from the empirical analyses, we formulate two hypotheses, which we test in a laboratory setting by means of an ad hoc experiment

Students’ mobility attitudes and sustainable transport mode choice

Purpose: This study aims to explore the propensity of university students to use different sustainable transport modes, taking into account individual and specific trip characteristics, as well as students’ psychological traits (i.e. attitudes). Design/methodology/approach: Using the transport mode preferences of 827 students who responded to a travel survey, a two-step analysis is conducted. The first step examines the effects of individual characteristics, travel experience and origin or destination features on students’ stated preferences (i.e. self-selected values assigned to personal attitudes). The second step analyses students’ travel mode choices, given their intrinsic mobility attitudes. Findings: The results suggest that informing students about environmental issues increases their propensity to use sustainable mobility, leading to an average decrease in private transport usage of 5.8 per cent. Interestingly, improving the public transport service and promoting sustainable transport mobility have different impacts on individual campus areas. For campuses located in the city centre and in the historical hamlet, improvements in public transport are found to decrease solo driving by 3.3 per cent and 5.3 per cent, respectively. In suburban areas, this value increases to 9.5 per cent. Originality/value: This work makes two contributions to the literature. First, it focuses on an unexplored setting, namely, that of a multi-campus university, with districts located in three different areas. This is used to explain how students are influenced by their travel experience and the cultural framework in which they are embedded. Second, the two-step analysis leads to a deeper understanding of the differences between attitudes and “intrinsic attitudes”, and their relative influence on the preferred alternative

Multi-dimensional price elasticity for leisure and business destinations in the low-cost air transport market: Evidence from easyJet

This study investigates the price elasticity of demand in the European low-cost carrier (LCC) industry by analysing Internet fares for all easyJet flights departing from the Amsterdam Schiphol airport towards 21 European destinations between March and September 2015. Results suggest that the price elasticity of demand greatly varies across different dimensions, ranging from −0.535 for the business-oriented route of Hamburg to −1.915 for the leisure-oriented route of Split. Price elasticity is also found to be higher for reservations made more days in advance, for reservations and departures occurring on weekends, and for flights taking off during lunchtime and in the summer period. All results are consistent with the different behaviours of leisure and business passengers and the ongoing increase in the business component of the LCC passenger mix