Airline pricing behaviour in the London-Paris market

Low-cost carriers like easyJet, Buzz and Ryanair use catching slogans highlighting their sometimes very low fares to attract passengers. This paper analyses pricing behaviour in the London-Paris market where low-cost carriers and conventional carriers are active. The central question is whether carriers react to each other's price adjustment; if so, carriers are clear competitors, and one would expect that price developments of the various carriers are similar. It appears that easyJet closely follows the fares of British Midland. Conventional carriers do not follow the price movements of the low-cost carriers. Instead, some carriers seem to lower their fares when potential competitors raise their fares. This may be because they interpret the price movement of their potential competitor as a signal of market saturation. All carriers increase their fares as the departure date gets closer. © 2004 Elsevier Ltd. All rights reserved.