Airport leakage and airline pricing strategy in single-airport regions

Travelers residing in communities having either small or medium-sized airports often avoid using the local airports in their region, and use other (out-of-region) airports to take advantage of lower fares and more convenient airline services. This phenomenon is generally referred to as airport leakage. Airport leakage can exist even in regions where the nearest substitute (airport) is over 150 miles away (i.e., in single-airport regions). This paper argues that airlines may have under-estimated the airport-leakage tendencies of travelers in single-airport regions, and consequently their current airfares in these regions may be higher than the optimal, or revenue-maximizing, levels. To test the validity of this argument, a simulation experiment was conducted by using the data for Des Moines International Airport (DSM), a medium airport serving the single-airport region in central Iowa (USA). The results imply that, for most airlines, current airfares in DSM may be higher than the optimal, and that they may increase revenues (or profits) by reducing airfares in DSM.