Airlines depend on advanced revenue-management practices to adjust prices to demand conditions. How these methods influence consumers’ decisions is less understood, however, including when they search and whether they buy, and the resulting heterogeneity in prices they pay. Gaining clarity on these dynamics may shed light into how effective modern pricing practices are at achieving airlines’ goals.
In “Should I Stay or Should I Go? An Empirical Analysis of Consumer Behavior Using Airline Web-Traffic Data,” Alex Marsh and his co-authors seek further insight by examining how consumers and an airline’s revenue-management system interact. They draw data from a major carrier’s website spanning November 2022 to April 2023 and complement this with Google Flights details on competitors’ offers. The authors then conduct a descriptive analysis to identify trends and variation in searches, purchases, and prices paid.
Using econometric models, Dr. Marsh and his co-authors identify the relationship between consumers and itineraries and the timing of searches, purchasing choices, and costs. They approximate a multinomial logistic regression, finding that single adults with loyalty status, especially booking one-way direct flights, tend to search closer to departure. They employ a binary logistic model to find that competitor pricing and a shifting consumer makeup explain the rising likelihood that searches become sales as departure approaches. Finally, they apply a fixed-effects regression to show how search and booking trends influence the amount ultimately paid. For example, late-arriving travelers have higher expenses, reflecting the airline’s tactic of segmenting inelastic customers.
Overall, the article highlights how specific factors of consumers jointly influence online search and purchase behavior. The study offers fresh perspectives on revenue-management practices, both in efficacy and areas to enhance.
Read the article here.
