The impact of advance purchase deadlines on airline consumers’ search and purchase behaviors

Abstract

Airlines frequently use advance purchase ticket deadlines to segment consumers. Few empirical studies have investigated how individuals respond to advance purchase deadlines and price uncertainties induced by these deadlines. We model the number of searches (and purchases) for specific search and departure dates using an instrumental variable approach that corrects for price endogeneity. Results show that search and purchase behaviors vary by search day of week, days from departure, lowest offered fares, variation in lowest offered fares across competitors, and market distance. After controlling for the presence of web bots, we find that the number of consumer searches increases just prior to an advance purchase deadline. This increase can be explained by consumers switching their desired departure dates by one or two days to avoid higher fares that occur immediately after an advance purchase deadline has passed. This reallocation of demand has significant practical implications for the airline industry because the majority of revenue management and scheduling decision support systems currently do not incorporate these behaviors.