An empirical study of price movements in the airline industry in the Indian market with power divergence statistics

Abstract

In this article, we analyze the dynamic price dispersion of the Indian domestic airline industry. We develop the power divergence statistic (PDS) for each route and study the average PDS and average airfare movement. We analyze the effect of Average PDS based on a few selected route characteristic variables and market structure variables. Our research suggests that the competition and price dispersion steps up airfares as the departure date comes closer, when both full service carriers and low cost carriers operate in the same market. Application of Revenue Management and Dynamic Pricing is a common practice in the Indian domestic airline industry. It also shows that route characteristics affect airfare movement as well as airfare dispersion in different routes.