Econometric analysis to estimate the impact of holidays on airfares

Abstract: The number of air transportation passengers during the holidays in Brazil has grown notably since the late nineties. One of the reasons is greater competition in airfares made possible by economic liberalization. This paper presents an econometric model of airline pricing aiming at estimating the impacts of holiday periods on fares, with special emphasis on three-day holiday events. It makes use of a database with daily collected data from the internet between 2008 and 2010 for the major Brazilian city, Sao Paulo. The econometric panel data model employs a two-way error components "within" estimator, controlling for airline/airport-pair fixed effect along with quotation and departure months effects. The decomposition of time effects between quotation and departure month effects is the main methodological contribution of the paper. Results allow for a comparative analysis of the performance of Sao Paulo's downtown and international airports - respectively, Congonhas (CGH), and Guarulhos (GRU) airports. As a result, the price of tickets bought 60 days in advance for flights with two stops leaving from the downtown airport fell by most.