Service-quality and pricing strategies in the airline industry: The role of distance

This paper analyzes airlines’ fare and frequency decisions, both theoretically and empirically. These decisions depend on route distance, as only short-haul routes are affected by intermodal competition from personal transportation. Although fares increase with distance both on short- and long-haul routes, the effect of distance on frequencies depends on the presence of intermodal competition. Frequencies decay with distance on long-haul routes. However, on short-haul routes, frequencies increase with distance because airlines try to boost profits by attracting demand from other transportation modes. Finally, on short-haul routes, intermodal competition from personal transportation affects more intensively network carriers than low-cost carriers as distance rises, which produces an increased differentiation between both types of airlines. • We study carriers’ service quality (i.e., flight frequency) and pricing decisions. • These decisions depend on distance and differ between short- and long-haul routes. • These decisions depend on intermodal competition from personal transportation. • The differentiation between network and low-cost airlines increases with distance.