A PYMNTS Company

Price Effects and Switching Costs of Airlines Frequent Flyer Program

By  |  September 10, 2012

Claudio A. Agostini, Universidad Adolfo Ibanez Diego Inostroza, Manuel Willington, Universidad Alberto Hurtado discuss Price Effects and Switching Costs of Airlines Frequent Flyer Program.

    Get the Full Story

    Complete the form to unlock this article and enjoy unlimited free access to all PYMNTS content — no additional logins required.

    yesSubscribe to our daily newsletter, PYMNTS Today.

    By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions.

    ABSTRACT: Frequent flier programs create a switching cost for the consumer and allow firms to exercise market power. In Chile there is a dominant airline in domestic markets that has a frequent flyer program with a large number of affiliates and it faces some competition from two small carriers that do have a frequent flyer program. Using a unique dataset for Chile we estimate the switching cost of each airline and the impact of the dominant airline frequent flyer program on prices. The results show a fare premium of around 18% due to the frequent flyer program.