Analysis of Key Determinants of Airline Tickets Pricing: the Case of the Russian Domestic Market

The study investigates the process of airline ticket pricing. Firstly, several studies of foreign scientists are reviewed to identify possible factors that may influence airfares. As far as the significance and the effect of the factors differ in various studies mostly due to the impact of country-specific characteristics, it is suggested to formulate several hypotheses and check them separately for the low-cost, economy, and business segments on real data of the Russian airline industry. It is suggested to split the hypotheses into two groups. The first one relates to ticket and route characteristics and the second one relates to several socio-economic parameters. In the study, the hypotheses are tested on the dataset, established by the author. It contains information on ticket characteristics of more than 15 thousand domestic flights of Russian air carriers during 2018-19. The information was gathered from the official websites of the air carriers, the Federal State Statistic Service of Russia, and the Federal Agency of Air Transport on a constant cycle. Hypotheses that relate to time-invariant ticket and route characteristics are tested on cross-sectional data and socio-economic hypotheses are tested on panel data. The outcomes of the research show that the relation between the distance of the flight and the price is positive, which may be explained by the fact that there are fewer substitutes for the air travel in case of long flights. Moreover, air travel has a comparative advantage for travelers in travel time and longer flights result in higher total costs for the companies. The intensity of the flights negatively influences airfares in economy and business segments as the companies have more opportunities to increase prices when supply is low. With the decrease in the number of days till the flight, the price tends to increase, which may be explained by the law of supply and demand. However, in the case of the low-cost segment, the influence of the factor is not so significant, because of the behavioral features of the passengers who buy tickets long before the flight. Fares on weekend tickets are higher for the low-cost and economy segments and lower for the business one. When there are few seats available ticket prices are significantly higher as the companies try to earn more on last-minute travelers with low demand elasticity. Additional options make low-cost tickets more expensive in comparison with the economy and business tickets as air carriers try to compensate for low fares by charging higher prices for additional options. Passenger traffic and population negatively influence the price: they allow air carriers to benefit from the economy of scale and reduce prices in order to gain a higher market share. However, this effect is much stronger in the case of the low-cost segment, where passengers are more price-sensitive, which leads to fierce price competition. The economy of scale creates opportunities for the carriers to reduce fares, which is necessary in this environment. In the case of the economy and business segments non-price factors come to the fore, price competition decreases, and the effect of scale does not influence the prices much. Moreover, in these segments, the level of citizens’ income has a positive impact on the prices as the companies have more opportunities to increase fares without influencing the demand. The share of transport expenses has a negative impact on the price only in the business segment. In regions with a higher share of transport expenses, people are more sensitive to transport fares and prefer cheaper transport services. Thus, air carriers have to diminish the prices to sell relatively expensive business tickets. The outcomes of the study may help Russian air carriers to understand which factors they should primarily consider in their pricing strategies as well as they may serve as a useful tool for the citizens to make the process of the tickets purchase more efficient.