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Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry

Luttmann, Alexander and Gaggero, Alberto A (2020): Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry.

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Abstract

Discounts during Thanksgiving and Christmas are common in a variety of retail markets. Although classical economic theory predicts that prices should increase when aggregate demand is high, one possibility is that consumers are more price elastic during seasonal demand peaks. In this article, we examine holiday pricing in the airline industry. Exploiting a unique panel of almost 22 million fares, we find that fares purchased on a holiday are 1.8% cheaper, supporting the conjecture that airlines price discriminate when the mix of purchasing passengers makes demand more elastic. These holiday booking discounts are also found to be larger in competitive markets, with the largest discounts reserved for flights within one-week of departure. In contrast to flights purchased on a holiday, we find that traveling on a holiday is more expensive. Consistent with peak-load pricing, we estimate travel premiums ranging from 41.6% to 82.0% on national holidays and from 4.6% to 35.0% on federal holidays.

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