Frequent flyer programs premium and the role of airport dominance

Abstract

This article estimates a Frequent Flyer Programs (FFP) price premium – higher fares associated with a larger proportion of travellers using FFP. The results show that FFP affect the entire price distribution, but the effect is larger on lower end fares. In addition, airport dominance increases the premium on less expensive fares but has no effect on the premium associated with the right tail of the price distribution.

Keywords:

• frequent flyer programs
• pricing
• airlines
• panel data

JEL Classification:

• C23
• L11
• L93

Notes

¹For more on the description of these programmes, see www.frequentflier.com.

²The typical approach in empirical studies that use the Airline Origin and Destination Survey (DB1B) database is to control for tickets sold through FFP by eliminating tickets prices below $10 or $20. See, for example, Borenstein and Rose (1994) or more recently Gerardi and Shapiro (2009).