EasyJet pricing strategy: determinants and developments

Abstract

We analysed the pricing policy of easyJet, the second largest low-cost carrier in Europe, using fare data for all easyJet flights from 2007 to 2012. For each flight, we determined the average fare per kilometre and advance booking discounts (ABDs) within a 90-day period before departure. By applying a panel methodology, we show that average fares tended to be lower, with larger discounts for advance booking, when easyJet dominated departure or arrival airports. Direct and indirect competition significantly reduced average fares and increased discounts for advance booking. Fares increased and ABDs decreased with easyJet's experience with specific routes. Other things being equal, the analysis also showed that easyJet reduced the average discount for advance booking during the period.

Keywords:

• low-cost carrier
• pricing determinant
• competition
• demand learning
• advance discount

Notes

1. The dependent variable β_i,t, estimated from Equation (1(1) ), is a generated regressor. See Pagan (1984) for the possible effects of employing generated regressors for the properties of the estimator employed.