FREE ELECTRONIC LIBRARY - Abstract, dissertation, book

Pages:   || 2 |

«AIRLINE PRICING STRATEGIES IN EUROPEAN AIRLINE MARKET Ľubomír Fedorco, Jakub Hospodka1 Summary: The paper is focused on evaluating pricing ...»

-- [ Page 1 ] --

Number 2, Volume VIII, July 2013



Ľubomír Fedorco, Jakub Hospodka1

Summary: The paper is focused on evaluating pricing strategies based on monitoring of air

ticket prices in different markets and in different time periods. Factors such as type

of market, competitors, peak period, season, fuel costs, and environmental costs

influencing air ticket prices are considered in the paper. Furthermore the paper discusses the differences in pricing strategies of traditional and low-cost airlines, different types of management..

Key words: air ticket price, tariff, fare, revenue management, traditional airlines, low-cost airlines, market, competitors, peak period, season.


The aviation industry as we know it in the current form went through a long development. The process of internationalization, globalization, and many other factors greatly increased the amount of travelling people. Trade agreements, expansion of cargo transportation caused greater mobility of business travelers. The behavior of leisure passengers also changed. All these factors have had a notable impact on creating of the airline pricing strategies.

Traditional carriers can offer two different vertical quality products (economy cabin vs.

business cabin, refundable ticket vs. nonrefundable ticket, VIP lounge access vs. no VIP lounge access), while low-cost carriers offer only one type of product (economy cabin, nonrefundable ticket and no VIP lounge access). Customers for this product could be divided into two types of travelers, business travelers and leisure travelers. Both of these categories have different preferences and look at the quality product. It is important to remember that these differences have significant impact on the direction of price policy and the management of product availability.


The main objective of RM is to sell the right inventory unit to the right type of customer, at the right time, and for the right price (Kimes 1997). RM is a tool to maximize revenue from the fixed seat capacity, which is perishable at the time of departure. It is based on the control of the release of a certain number of seats on sale across the booking classes. It focuses on optimizing the mix of passengers. In other words, RM is based on decision making whether or not to accept a booking request. The answer to this problem depends on whether Bc. Ľubomír Fedorco BEng, Ing. Jakub Hospodka Ph.D., Czech Technical University in Prague, Faculty of Transportation Sciences, Horská 3, Praha, 128 03, Tel.: +420 224 359 185, E-mail: hospodkaj@gmail.com Fedorco, Hospodka: Airline Pricing Strategies in European airline market 33 Number 2, Volume VIII, July 2013 the yield from this booking exceeds the yield that could be earned by denying the request and leaving the space in the aircraft for later sale at higher prices. RM assists in balancing between

three types of costs (Holloway 2008):

 spoilage cost  displacement cost  diversion cost Airlines currently use one of two RM methods: Traditional method or Low cost carrier method.

1.1 Traditional method With a traditional approach airlines offer a wide range of fares with various sale conditions and restrictions within each RBD and each cabin. In this case, the price is fixed and the main task of RM is to maximize revenues by controlling capacity, it means to allocate capacity among all the proposed fares. Talluri and van Ryzin 2004 describe this method as “quantity-based revenue management method”. Fig.1 shows hierarchy of fares, booking classes and cabins managed by traditional RM method.

1.2 Low cost carrier method Most low-cost carries do not segment market on the basis of willingness to pay for the air ticket with different conditions and restrictions. Conversely they offer at any time a single price for one product at each departure. This price is generally increasing with approaching departure. As offered air tickets are one-way tickets, minimum stay at the destination or Saturday night rule cannot be applied. On the other hand tickets are non-refundable and ticket changes are either completely prohibited or a subject to any administrative change fee.

Capacity control in this case is not a problem, because instead of more various products for sale there is only one for sale at any one time. The problem is deciding when to close the sale of tickets in the one particular price and open sale in the next price level. This requires closer integration of pricing department and RM. RM main objective is therefore to maximize revenue through dynamic pricing, which means managing price levels currently on sale.

Talluri and van Ryzin 2004 describe this method as ‘price-based revenue management method’.

Fedorco, Hospodka: Airline Pricing Strategies in European airline market 34 Number 2, Volume VIII, July 2013

–  –  –


Airline pricing strategies mainly depends on the decisions of the company itself and on the RM, which they apply when managing revenues. But there are three major external factors that have a significant impact on the development of air ticket prices: market structure, demand and operational factors. The market structure is meant as the whole external environment, which the carrier operates its flights in, and the way the airline industry is organized in the country. The environment is influenced by various governmental regulations, environmental economics, market competition, international relations etc. It is generally acknowledged that demand affects the ticket price. If the demand is greater than supply ticket prices are increasing. In the contrary, if the demand for air travel is less than what airlines offer, the market can expect more discount tickets. Operational factors are a broad category merging wide range of factors such as fuel, online booking, aircraft handling, schedule etc.

2.1 Type of market In the aviation industry, the markets are usually segmented on markets with timesensitive passengers and markets with price-sensitive passengers. Time-sensitive passengers are mostly business travelers who need to travel at exact days and exact times. These travelers typically ignore air ticket price in order to satisfy their request to travel at specific time. Also, certain leisure passengers may belong into this group, especially those who need to travel and return according to a fixed schedule. Price-sensitive passengers choose flights according to ticket price. Those passengers travel in less demanded days and sometimes their travel time is significantly longer if the final price is lower.

Another way to divide market is on the markets of business travelers and leisure travelers. Business travelers require higher frequencies, because their time is highly valuable in comparison with leisure travelers and they pay higher tax when they are forced to wait longer than their preferred time departures. Therefore schedule focused on business travelers Fedorco, Hospodka: Airline Pricing Strategies in European airline market 35 Number 2, Volume VIII, July 2013 is more expensive compared to the flight schedules created for leisure passengers. On the other hand, higher revenues from tickets, which are sold at noticeably higher fares, compensate higher costs.

While some markets are purely focused on business travelers (London City), others are oriented for leisure passengers (Venice), in most markets airlines transport mix of both passenger´s types. In this case, the airline has divided passengers to different groups based on certain characteristics. At this stage, each group of passengers pays a different price for tickets.

2.2 Competition As the market consists of customers, vendors and product, market structure depends on the number and power of sellers and buyers. An important factor is the number of airlines offering their services on a particular O&D. It depends on the regulation of the environment, location and nature of the market. Based on these factors, airline creates pricing strategy for the product offered. Market can be in three stages: market with ideal competition, monopoly and oligopoly.

2.3 Seasonality, peak period Seasonal pricing is a tool for charging higher prices at times of bigger demand when capacity constraints cause high marginal costs. In the aviation industry, changes in capacity utilization in different days or different flights generate differences in the seat cost on flights.

During the peak period, most of the aircraft are in the air and expected shadow costs of capacity will be higher (Borenstein and Rose 1994).

Due to capacity constraints during periods with increased demand, if airline wants to increase revenue it must shift some demand from high demanded flights to flights with low demand. For instance, implementation of advance purchase rule can be a strategy for maximizing revenue for airline, which has to face capacity constraints in periods with high demand. Carrier should predict carefully the peak seasons and offer discounted tickets for flights out of this period. Passengers with low time costs who originally wanted to fly in the peak season, will move to low demanded flights.

2.4 Fuel costs Increasing fuel price creates significant pressure on airlines. In the past fuel was approximately 10-15% of total operational costs. Today it is the largest cost part representing 35% of the total costs (Holloway 2008). Despite of all steps reducing fuel costs, airlines are still struggling with increased costs. Therefore, if carriers have higher fuel costs, they tries to shift costs to customers in the form of fuel surcharges. Airline representatives claim that increasing fuel price will cause more expensive air travelling, but prices cannot rise to a level that will not be accepted by the market or over a level of competitors. Nowadays, it is common that carriers increase fuel surcharges. Passengers pay these mandatory fees at the time of booking.

Fedorco, Hospodka: Airline Pricing Strategies in European airline market 36 Number 2, Volume VIII, July 2013

2.5 Income Customers income is one of the major factors influencing demand for air travel. As soon as economic activity and trade increase, demand for business air travel grows. With greater economic activity, income of the population rises. Consequently, people start to have higher expenses for less important goods and services such as holidays. Similarly, with increasing prosperity, people are less price-sensitive and more predisposed to product quality. This leads airlines to sell tickets in higher prices in an effort to offer the best service. Conversely during a recession customers are more sensitive and are more interested in price than the comfort and brand image. These facts force airlines to stimulate demand for air transport with various promotions with discounted tickets. Often bad financial situation of customers results in shifting of passengers from traditional airlines to low-cost airlines

3. THE DATA Monitoring of air ticket prices was focused on pointing out fundamental differences in airline pricing strategies depending on various factors. Monitoring took place from August 2012 till April 2013. The survey was focused on the Czech market and especially on Czech Airlines and other carriers operating their flight on this market. Specifically, there were selected routes such as Prague – Paris, Prague – Amsterdam, Prague – Brussels and Prague – Rome, which are served by CSA, Air France, KLM, Brussels Airlines, Easyjet and Smartwings. The routes were observed in the following time periods: summer season, autumn season and weaker winter. For the survey there were selected three-day trip Friday-Monday suitable for leisure passengers and also one-day and two-day trip on weekdays, which are used mainly by business passengers. Ticket prices were collected from airline websites.

4. THE RESULTS Fig 2 shows the evolution of ticket prices on route PRG-CDG departing 26/10/2012 and returning 29/10/2012. 4 airlines were compared and as some companies offered more flights in a day, the lowest price was chosen. We can see the basic principle differences in pricing strategies of low-cost airlines and traditional carriers. In case of low-cost airlines Easyjet and Smartwings, which use dynamic price strategy, it is possible to see a gradual price increase with the approaching departure. While ticket price with Easyjet has grown gradually from about 2000 CZK to above 5000 CZK, Smartwings kept the same price up to 14 days to departure with increase to price around 9000 CZK. Paradoxically at the beginning Smartwings offered air tickets for higher prices than traditional carriers CSA and Air France.

Fedorco, Hospodka: Airline Pricing Strategies in European airline market 37 Number 2, Volume VIII, July 2013

–  –  –

Traditional carriers CSA and Air France use pricing strategies based on capacity allocation, where the company allocates a number of seats in booking classes for a fixed price. Availability of booking classes is managed by the bid price, which is based on the expected demand. Therefore, if the booking velocity does not develop as the system expects, bid price falls. Then it can occur that offered fares are lower closer to the departure. This can be seen in the case of CSA 23 and 6 days before departure. Fares may also be affected by various conditions and rules of reservations, particularly flexible tickets. This could be the reason of huge increase of prices on Air France flights and then significant drop in a few days.

Certain number of tickets could be reserved for the flight, which were subsequently not confirmed and capacity of the aircraft was re-opened again.

KLM CSA Easyjet Ticket price (CZK)

–  –  –

Fig. 3 shows ticket prices on the route PRG-AMS for the next 60 days from 07/04/2013.

Pages:   || 2 |

Similar works:

«Dreidimensionale numerische Modellierung schräger Meteoriteneinschläge Strategien und Anwendungen Inaugural-Dissertation zur Erlangung des akademischen Grades doctor rerum naturalium (Dr. rer. nat.) eingereicht am Fachbereich Geowissenschaften der Freien Universität zu Berlin vorgelegt von Dipl. Geophys. Dirk Elbeshausen aus Versmold Institut für Geologische Wissenschaften, Fachrichtung Geophysik der Freien Universität zu Berlin Erster Gutachter: Prof. Dr. Georg Kaufmann Zweiter Gutachter:...»

«Enduring Love? Couple Relationships in the 21st Century Survey Findings An Interim Report Authors Jacqui Gabb, Martina Klett-Davies, Janet Fink and Manuela Thomae © The Open University February 2013 Contents page Contents page.. 2 Executive summary.. 3 1. Introduction.. 7 2. Research Methodology.. 9 3. Sample Information (UK).. 10 4. Relationship Quality, Relationship with Partner, Relationship Maintenance 4.1 Survey design and measures.. 12 4.2 A guide to results.. 15 5. Findings 5.1...»

«Földrajzi Értesítõ 2003. LII. évf. 1–2. füzet, pp. 107–121. A lakótelep-rehabilitáció helyzete hazánkban1 Elméleti és gyakorlati kérdések EGEDY TAMÁS2 Zusammenfassung Lage der Neugestaltung von Grosswohnsiedlungen in Ungarn Während des Sozialismus wurden staatliche Investitionen in Ungarn überwiegend als Grosswohnsiedlungen realisiert und diese Jahrzehnten brachten eine rasche Verbreitung von Panelwohnsiedlungen mit sich. Nach der politischen Wende bilden diese...»

«4TH ANNUAL SHOPPING SPECTACULAR! SHOPPING CATALOG EARN SPECTACULAR SHOPPING POINTS SHOPPING EVENT September 1– October 10 October 16 & 17 Noon–4pm or 5pm–8pm Where will you play? ACCeSSoRIeS Delsey, 3 PC Hardside Luggage Set Item code Shopping Points / Reward Credits 01803PL 55,000 Helium Shadow 3 piece Nested Luggage Set features scratch resistant hard exterior, 360 degree rotation wheels, TSA-accepted lock, self-repairing zippers and top/side carrying handles. Delsey, 4 PC Luggage Set...»

«Koordinierung der Digitalisierungsmechanismen Lund-Aktionsplan EUROPÄISCHE INHALTE IN GLOBALEN NETZEN KOORDINIERUNGSMECHANISMEN FÜR DIGITALISIERUNGSPROGRAMME Arbeitsunterlage, Entwurf 1.3 vom 5. Mai 2001 Letzter Stand: 23. Juli 2001 AKTIONSPAN ZUR KOORDINIERUNG DER DIGITALISIERUNGSPROGRAMME UND -KONZEPTE im Anschluss an die Expertentagung in Lund, Schweden, 4. April 2001 SCHAFFUNG EINES RAHMENS ZUR KOORDINIERUNG DER DIGITALISIERUNG IN EUROPA Koordinierung der Digitalisierungsmechanismen...»

«Branchenbarometer Biomethan. Daten, Fakten und Trends zur Biogaseinspeisung. Juni 2012. Branchenbarometer Biomethan Juni 2012: Zentrale Ergebnisse.  Die aktuelle Geschäftsund Vermarktungslage für Biomethan wird von den Branchenakteuren als „befriedigend“ mit Tendenz zu „schlecht“ eingeschätzt.  Die Beurteilung der zukünftigen Geschäftslage fällt etwas positiver aus: Das Branchenbarometer zeigt eine Tendenz zu „gut“.  Der Einsatz von Biomethan in KWK gemäß EEG stellt...»

«Distribution Agreement In presenting this thesis or dissertation as a partial fulfillment of the requirements for an advanced degree from Emory University, I hereby grant to Emory University and its agents the non-exclusive license to archive, make accessible, and display my thesis or dissertation in whole or in part in all forms of media, now or hereafter known, including display on the world wide web. I understand that I may select some access restrictions as part of the online submission of...»

«Country Report of the Research Project by This publication provides an overview of status and trends regarding the constitutional, legislative and administrative protection of the rights of indigenous peoples in South Africa. the International Labour Organization and the African Commission on Human and Peoples’ Rights on This report provides the results of a research project by the International Labour Organization and the African Commission’s the constitutional and legislative protection...»

«“Without the Clutter of Unimportant Words”: Descriptive Keyphrases for Text Visualization JASON CHUANG, CHRISTOPHER D. MANNING, and JEFFREY HEER, Stanford University Keyphrases aid the exploration of text collections by communicating salient aspects of documents and are often used to create effective visualizations of text. While prior work in HCI and visualization has proposed a variety of ways of presenting keyphrases, less attention has been paid to selecting the best descriptive terms....»

«University Studies Program Southeast Missouri State University Table of Contents Welcome from the President What is University Studies? Administrative Offices Program Objectives Program Structure Courses in the 100-200 Level Core Curriculum Courses in the 300-Level Interdisciplinary Curriculum Courses in the 400-Level Interdisciplinary Curriculum Courses in the 500-Level Interdisciplinary Curriculum University Studies Student Checklist Course Descriptions First Year Introductory Course UI100...»

«Republic oi :!1-.: Phi!ippin~s SupL,,._;Court ]\! i!1i Ia G.R. No. 1Hi089 MERLINDA MONTANEZ, Compl;;;iti~\nt, Present: VELASCO, JR.,.!., Chairperson, LEONARDO-DE CASTRO,* PERAIJTA, ABAD, and -versusMENDOZA,.JJ.Pronaulgafcd: LOURDES TAJOLOSA CIPHL\i ;O, ResporhkiiL 22 Oc lober _ -4012 · V( ~~-(/tY!_~ X ·· X DU:CISION PERALTA, J.: l~)r For our resolution is a petition review on certiorari which seeks to annul the Order' dated September 24, 2007 of the Regional Trial Court (RTC) of San...»

«Insight Text Guide GM Dewis What’s Eating Gilbert Grape? Dir. Lasse Hallström Copyright © Insight Publications 2011 First published in 2011 by Insight Publications Pty Ltd ABN 57 005 102 983 89 Wellington Street St Kilda VIC 3182 Australia Tel: +61 3 9523 0044 Fax: +61 3 9523 2044 Email: books@insightpublications.com.au www.insightpublications.com.au Copying for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10% of this book, whichever is...»

<<  HOME   |    CONTACTS
2016 www.abstract.xlibx.info - Free e-library - Abstract, dissertation, book

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.