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Pricing in Small Connecting Markets

Pricing in Small Connecting Markets. Why Hubs Still Work. Fares are Higher for Small Markets (Includes both Small and LCC Presence Effects). For Pax < 10/day Fare = $117 + 0.046 * Distance 257 data points; R-square = 0.42 For 10/day < Pax < 100/day Fare = $106 + 0.037 * Distance

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Pricing in Small Connecting Markets

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  1. Pricing in Small Connecting Markets Why Hubs Still Work

  2. Fares are Higher for Small Markets(Includes both Small and LCC Presence Effects) For Pax < 10/day Fare = $117 + 0.046 * Distance 257 data points; R-square = 0.42 For 10/day < Pax < 100/day Fare = $106 + 0.037 * Distance 758 data points; R-square = 0.37 For Pax > 100/day Fare = $98 + 0.035 * Distance 671 data points; R-square = 0.34

  3. HCC Fares are Higher for Small Markets For Pax < 10/day Fare = $127 + 0.042 * Distance R-square = 0.24 For 10/day < Pax < 100/day Fare = $110 + 0.036 * Distance R-square = 0.30 For Pax > 100/day Fare = $115 + 0.031 * Distance R-square = 0.22

  4. LCC Fares are Higher for Small Markets For Pax < 10/day Fare = $111 + 0.0442 * Distance R-square = 0.33 For 10/day < Pax < 100/day Fare = $100 + 0.034 * Distance R-square = 0.31 For Pax > 100/day Fare = $83+ 0.032 * Distance R-square = 0.38

  5. LCCs Price Close to HCCs in Very Small Markets Pax < 10/day HCC fare =$127 + 0.042 * Distance LCC fare =$111 + 0.044 * Distance

  6. Fares are Linear With Distance • Average Fare = $153 + $0.043 * Dist • R-square = 0.13 • All US domestic markets with valid data • Excluding Hawaii • Mix of HCC and LCC markets • 18,000 data points (Airport Pair O-Ds)

  7. LCCs Price Connections Close to HCCs 10/day < Pax < 100/day HCC fare =$100 + 0.036 * Distance LCC fare =$100 + 0.034 * Distance

  8. LCCs Fares In Nonstop Markets are LowHCC fares are a mix of all-HCC and with-LCC Markets Pax > 100/day HCC fare =$115 + 0.031 * Distance LCC fare =$83 + 0.032 * Distance

  9. Full Model Includes 3-4 Variables Fare = $102 + 0.040* Distance (R2 = 0.36) Fare = $131 + 0.038* Distance – 6.4 * Ln(Pax) (R2 = 0.36) Fare = $153 + 0.037* Distance – 6.9 * Ln(Pax) - $23 if LCC presence(R2 = 0.48) Fare = $151 + 0.037* Distance – 7.0 * Ln(Pax) - $20 if LCC presence + $26 if HCC only(R2 = 0.48)

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