Airline pricing strategy

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Shopping for the best airline ticket can cause a serious headache. As all we know, finding the best airfare deal is very difficult in an increasingly competitive marketplace.  Airlines goal is to make most money, but we as customers want to spend as less as possible money. Therefore, what the airline pricing secrets are and how carriers come up with fares? This blog will examine different pricing strategies adopted by major airlines.

#1 Price Discrimination

Price discrimination occurs when airlines sell the same ticket to different groups of consumers at different prices. Airlines are allowed to charge different prices depending on many conditions:

  • Time of buying ticket- airlines do not have hard and fast rule, but usually if customer purchase a ticket far in advance it tends to be cheaper. However, if demand for a flight is higher, then the airline will most likely increase the price of that flight. Moreover, remaining tickets will be sold for higher price. Nevertheless, if a demand for flight is low, the airline will do opposite and decrease the price of ticket.
  • Time of departure – airlines often price tickets at different prices depending on the season and day of the week. During summer and holiday season, the price will be higher because demand to fly is greater. The same situation applies during the week time, Monday to Friday flights will be much more expensive because business travelers usually occupy these.
  • Age profile – discounts fares are offered to special groups of people, such as students, seniors and military personnel. For example, those passengers with age 65 and older can fly at some discount for selected travel destinations.
  • Quantity bought – the major airlines often sell large quantity of tickets to consolidators at bulk prices. When consolidators are unable to sell the ticket, they willing to sell them at heavy discount to customers searching for last minute flight deals.

#2 Bundling

Bundling occurs when multiple products (a fly ticket, hotel and car rental) are sold together as a package.  Airline industry has successfully used bundling strategy to create value for traveling customers, to reach different customer segments and to increase revenue.

# 3 Predatory Pricing

Predatory pricing occurs when one company price below an appropriate measure of cost to eliminate a competitor. Many different airlines competing against each other for market share, for example, United, Delta, American, US Air, Southwest, and Jet Blue. Since there is ongoing competition in the airline industry, many airlines organize pricing campaigns to oust other airlines from their spaces.

 

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