The Pricing Behavior of Domestic Airlines in the Great Recession

Open Access
Author:
Budney, Charles Stanger
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Charles Theodore Murry, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
Keywords:
  • airlines
  • pricing
  • recession
  • market share
  • competition
Abstract:
The goal of this paper is to analyze the relationship between an airlines market share on a route and its pricing decisions on that route under recessionary economic conditions. The airline industry has a unique structure. Each route an airline chooses to fly is itself a market in which it is competing against other airlines. In different markets, the same airline may be a different type of competitor. By looking at data from the Department of Transportation’s Domestic Airline Consumer Airfare Report, I examine changes in airline pricing by type of airfare as well as by market share. I use a number of tools to examine the impact of market share on pricing during the recession as well as the impact on market share itself during the recession. Together, these allow me to form a more complete analysis of the behavior of airlines during recessionary periods. My results show that airlines aggressively cut fares during the recession, while market shares remained stable throughout.