Volatility of Dynamic Pricing: An Empirical Study of the Low Cost Airline Industry in Thailand

Abstract

The purposes of the study were to find and compare volatility in ticket prices of low-cost airline companies for domestic and international flights departing Bangkok to various destinations such as Chiang Mai, Phuket, Tokyo, and Melbourne as well as to compare relative volatility between domestic and international ticket prices in a particular time frame. An econometric model is used in this research to find any dynamic pricing volatility in airlines ticketing systems during the study period of 6 months. Daily ticket prices were obtained via the official airline. Microsoft Excel NumXL (addins) was used to construct and examining the volatility model to calculate the GARCH (1,1) results.

By observing ticket price changes in various flight routes including domestic and international routes to analyze and identify the volatility level of the change in ticket prices over the study period of 6 months, we found that level of volatility increases as the time to departure approaches. Empirical analyses reveal that distributions of the change in ticket prices deviate from normality with volatility varying over time. The results of the volatility tests show that the ticket prices were quite volatile when purchasing tickets close to the departure date.