In economics law of supply and demand states that all things being equal, is the price of something increases the demand will drop. This is generally true, however, in a few special cases, demand reaches a point where it will not change regardless of price movement. Examples of inelastic demand include the least amount of inferior quality (low-cost) food that is required to sustain a population. Insulin is one of the good examples of inelastic demand. Prices may increase for this product; customers will not hesitate to engage in a transaction, especially when it involved a matter of life and death.
After the deregulations in the airline industry, the revenue management techniques have become inevitable for airline seat inventory control. Revenue management is the process of selling the limited perishable capacity to the right customers at the right prices so as to optimize the total revenue. Classic examples of RM can be found in the airline and hotel industry where there are finite number of seats and hotel rooms, respectively (Mou and Wang 2014). The main problem in airline revenue management is to determine booking control strategies. Airlines seldom charge the same fare for each seat on a flight, but instead price seats based on customer’s willingness-to-pay.
Importance of marginal cost in price discrimination – In markets where the marginal cost of an additional traveler is low, the firm has an impetus to utilize value segregation and increase the price to sell all its tickets. This is the reason now and then costs for aircrafts can be low just before their date. Once the company is due to fly the MC of an extra passenger will be very low. Therefore, this justifies selling the remaining tickets at a low price. Suggestions to improve the situation – From the above information it is clear the consumers suffer a lot due to the price discrimination followed by the airline industry.
So, if prices are too high, there will be a large number of seats that are left open on flights, but if prices are too low, Southwest Airlines will have full flights, which could create aggravation among travelers as well so low profit levels for the company. So, identifying these aspects when setting their seat prices will be a huge advantage for the company. Southwest Airlines also needs to recognize the atmosphere of their flights. Having friendly flight attendants, creating a “comfy” design, and offering a number of on flight amenities will allow the atmosphere of a Southwest Airlines flight to be a positive one. Comparing these aspects to other rival companies and ensuring that they are at the forefront will give the company a high level of competitive over their rivals.
Economic segment is how the economy had affected to business in terms, interest rates, taxation, general demand, exchange rate and European and global economic factors. Besides, it also indicates how the company will analyse and make strategies to deal with economic factors. Commonly, decreased in air travel will affect to falling revenue in the airline industries. The economic downturn has reduced the purchasing power of customers with fewer people travelling by air. When there are good in economic growth, consumer’s discretionary income rises and there is often an increased demand for air travel that people like to travel and spend their leisure time with vacation and others.
Airline Pricing Part 7 Game Theory: This video is about pricing strategies include price decreases and discounts, cost-plus pricing and price discrimination. The effectiveness of price reductions for a firm operating under oligopolistic conditions, such as airlines, depends upon the reactions of other airlines in the market. This is because firms are interdependent. Game theory and the kinked demand curve can help the price reductions in oligopolistic
An airline company must make sure that the services provided don’t have any substitutes in the market. This is because the passenger will tend to go for the airlines company that offer lower price and high quality provided by the airlines services. In the market, there are a lot of competitors that provide a lower total cost of a trip that the passengers can grab compared to what Ryanair Holdings had offer. This is because, even though this airlines company offer low cost, eventually the price would still be expensive due to the additional cost for the services that are supposedly included in the ticket price such as online travel cot and golf clubs. There are also cost that are irrelevant to be charged to the passenger such as delay or cancellation fees that make the substitution are readily in the market because other airlines company are not charging their passenger with this kind of costs.
Most of JetBlue’s primary competitors including Southwest Airlines and Delta Airlines are larger and have financially very strong and established brand name. Many of the competitors enhanced their services and dropped prices to give tough competition. In addition, there has been a lot of merger and acquisition activity within the industry which caused fares to reduce further putting pressure on revenues and earnings of JetBlue. Geographic Risk: JetBlue when expanding into Latin America is also subjected to high risk. These countries are emerging markets, and face risks due to political and economic instability, underdeveloped legal systems, strike from third party service providers etc.
The simple task of booking flight tickets has become a science in its own right. People, these days, prefer booking tickets themselves instead of buying from the travel agents in order to save more on their flight tickets. The travelers have a myriad of variables to take into account when plotting air travel – from the distance of journey or the type of services offered – but the other side of the story is that the airlines companies try their best to ensure maximum revenue while ensuring offering best prices on tickets. The airlines companies use the most sophistic software to adjust fares dynamically that consider the performances of its routes and services around the world. Understanding the factors that affect your flight ticket prices used to a confusing process in itself, but not anymore as the codes have been decoded by the experts and we’d like to share with you some of the top factors.
Airline alliance is a cooperative arrangement in which two or more shipping operators jointly claim to improve competitiveness and thereby improve overall performance in relation to joint operations, although the alliance in airline industry has the negative impact for the airlines companies, the alliances are popular in the airlines companies (Morrish & Hamiliton, 2002). Oster and Pickerell (1986) pointed out that in 1985 report, the alliance was initiated in the late 1980s by the transatlantic alliance and expanded it to almost 50 commuter transport companies and a major airline company which formed in the code-sharing flight manners. As Dresner and windle notification (1996), those airlines companies which didn’t join the airline alliance