Competitive vs. monopolistic routes: Are fares so different?

Differently from a situation where a single carrier operates on a certain route, a high number of different carriers operating on the same route is usually regarded as a signal of a competitive setting and, therefore, as a situation potentially beneficial for customers in terms of lower prices. This is obviously true if the argument involves a comparison between different market forms given the level of demand. Across different routes, however, the number of carriers depends also on the level of demand for each particular pair of destinations, so that we cannot assume a priori that fares per kilometre on “monopolistic” routes are higher than on more “competitive” ones, other things being equal. In the present study, we used a database containing the daily fare over the 3 months prior to each flight operated by Ryanair and easyJet during the period 2007-2008. We aimed at checking what actually happens in European air transportation market on assorted routes characterized by different number of carriers. Since competition is also expected to play a different role in the case of high-intensity routes, with several flights per day, and in the case of low-intensity routes, with a few flights per week, we repeated the empirical analysis, by separating those two groups. Preliminary results confirm that, especially for high-frequency routes, the presence of competition results in lower fares. In the case of low-frequency routes, the effect of competition on offered fares is mixed since it also crucially depends on the presence of indirect competition by carriers operating on alternative routes.