The impact of COVID-19 on airlines’ price curves

Abstract

COVID-19 has had a major negative impact on the travel industry, especially on the aviation sector. Along with travel restrictions to contain the spread of the virus, a drastic drop in demand—mainly caused by the decrease in the willingness to travel—has also been registered. This study explores the impact of COVID-19 on airline pricing curves, in terms of the price level, price dispersion, and the extent to which intertemporal price discrimination is applied. By analyzing all major European flights departing from and arriving in Italy, the results reveal a 31% overall decrease in airline price per kilometer. Additionally, price dispersion dropped, and price discrimination intensity was found to have decreased as a result of COVID-19. These outcomes can be explained in light of two major impacts of the pandemic on air travel demand, namely the variation in the passenger mix and travelers’ higher price sensitivity. Further analyses indicate that—along with other market and flight characteristics—market concentration, introduced interventions to prevent and control COVID-19, and airline- and destination-types play an important role in determining prices, price dispersion, and the price discrimination intensity.