‘Wild Your weekends' promotion and its effect on traffic recovery during COVID-19 pandemic

Abstract

China Eastern Airlines launched a ‘Wild Your Weekends' programme offering buyers an unlimited number of free trips during weekends, which is unprecedented in the Chinese airline market and also rare around the world. However, it is unclear whether such a promotion is effective in improving airlines’ liquidity. This study adopts the difference-in-differences (DID) method to empirically examine the impacts of this promotion programme on traffic volumes, ticket prices and revenues of China Eastern and its competitors. Our estimations suggest that this programme has overall helped China Eastern improve its liquidity. On one hand, the carrier was forced to lower prices on weekends, probably because passengers formed strong beliefs on China Eastern’s low price due to its promotion programme, and felt psychologically unfair by paying high prices as compared to the programme’s users. This decreased China Eastern’s revenue from non-programme passengers on weekends.

KEYWORDS:

• COVID-19
• airline liquidity
• price promotion
• difference-in-differences (DID)

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Please see the news article below for more detailed information on this program: https://news.cgtn.com/news/2020-07-24/Travel-in-the-post-pandemic-era-Flight-pass-stimulates-air-travel-SoloiLXRV6/index.html

2 The logarithm regression model has been widely used in airline price and traffic regressions (e.g., Morrison and Winston 1995; Fu et al. 2015a). After taking logarithm of the variables, the coefficients would stand for the elasticity, which is the percentage change of the dependent variable to the percentage change of the independent variables, such that the estimated effects would not be driven by the different market size (i.e., route traffic size).

3 We have collected data and constructed various control variables, such as city population, airlines’ share in endpoint airports, route distance, route-level HHI index. These variables are fixed or do not change significantly during our study period, such that their coefficients cannot be identified in our estimations.

4 We have three treatment groups, which named ‘WYW air route’, ‘WYW MU’, ‘WYW other’ in tables and figures respectively.

WYW air route: All airline on ‘Wild Your Weekend’ air routes.

WYW_MU: China Eastern Airline on ‘Wild Your Weekend’ air routes.

WYW_OTHER: Airlines on ‘Wild Your Weekend’ air routes except China Eastern Airline.

5 As discussed in this paragraph, China Eastern’s traffic increase in the weekdays is due to the complementarity of traffic between weekdays and weekends, and also the possible loyalty increase in China’ Eastern’s passengers. While the complementary effect can be clearly shown by our weekday day-to-day regression results that show the traffic increase in Mondays and Fridays are more significant, the loyalty increase cannot be clearly verified and quantified by formal statistical approaches.

6 As the revenue equals the multiplication of the traffic and average ticket price. The revenue change equals the change in multiplication the traffic and price. When China Eastern’s traffic was increased by 3.2% and the ticket prices was decreased by 13.2% for non-WYW passengers in the weekend, the revenue is reduced 10.4% as a result.

Additional information

Funding

Financial supports from National Natural Science Foundation of China research fund (71901065) and the Program for Young Excellent Talents (19YQ01) of University of International Business and Economics are highly appreciated.