| Summary: | With the increasing presence of Low Cost Carriers in the Aviation Industry, airlines would be
concerned about the resulting competitive effects these carriers have on their business.
Hence, this paper aims to analyze whether the current pricing strategies of both Low Cost
Carriers and Full Service Carriers are profit maximizing. This paper will also find out
whether it is true that Low Cost Carriers tend to increase their airfares closer to departure
dates while Full Service Carriers tend to decrease their airfares close to departure dates.
Firstly, our study uncovers some factors that can affect airfares. Specifically, the number of
days before departure can warrant drastic changes in airfares. Thus, airfares are tracked on a
daily basis and the data collected are regressed using two theoretical models that we have
developed. Results have shown that our proposition of the price trend holds for airlines
competing on the same routes. However, our findings from the model, which incorporated
Bertrand competition, did not show a significant level of competition between Low Cost
Carriers and Full Service Carriers. Given these findings, our paper concludes that the current
airfares offered are a result of profit maximizing behaviors of both carriers.
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