An empirical analysis of the dynamic pricing practices of legacy carriers and low-cost carriers across US domestic routes

In airline ticket pricing, customers who buy their ticket far in advance of the departure date are often rewarded with a discount, the advance purchase discount (APD), while late bookers have to pay a premium, the late purchase premium (LPP). In this paper I study the effects of carrier type and route competition on airline pricing dynamics over the advance booking period by focussing on APDs and LPPs. I make use of an extensive dataset concerning the flights on 22 October 2018 of the 100 busiest routes in the US domestic market. The price trend of each carrier on a route is estimated by a hyperbolic function and examined using fixed effects regressions. I find that legacy carriers grant higher APDs and set higher LPPs than low-cost carriers. I do not find statistical evidence that legacy carriers change their pricing dynamics between routes with and without competition from low-cost carriers. Neither do I find enough evidence to claim that airlines adjust their pricing dynamics based on the number of competitors or flights.