DYNAMIC AIRLINE BUNDLE PRICING: THE SOUTHWEST EVIDENCE

This study investigates the price difference between bundled flights (i.e., itineraries from A to B via H) and the sum of their individual flight segments (AH1HB). The analysis focuses on the temporal variation of bundle discounts, both in isolation and in relation to capacity utilization. Additionally, the study examines other determinants of the bundle discount, such as layover duration and market structure. Empirical evidence from Southwest Airlines provides strong support for theoretical predictions: bundled itineraries are generally priced lower than the sum of the corresponding individual segments. This outcome is consistent with second-degree price discrimination through quantity discounts, particularly when demand for the constituent flights is uncertain and positively correlated.