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Airline Pricing Strategy

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Several experts believe that budget airline has reformed the entire airline industry and created a momentum for it to grow sustainably. Previously, the airline industry was experiencing a downturn in demand and surging production cost, which led to a profit recession. However, the price was regulated rigorously by the government, causing firms were not permitted to reduce price to stimulate customers demand. Such regulation has forced the fare gone high, and, thereby, customers could only select from similar high fees, discouraging them to fly. Thus, this situation prompted the implementation of relaxation in airline industry through granting more freedom to air-traffic businesses, such as freedom of entry and exit. The emergence of budget …show more content…

Firstly, separation of fare induced an abundant abatement of price which successfully intrigued price-conscious purchasers to search and buy the most economical ticket. At the same time, research had shown that passengers were becoming more price sensitive, demonstrated by a 20% inflation in price would cause a reduction of approximately 80% of possible airline users (Barbara, 2008). This implicated a drop in price might generate a greater motivation for people to purchase air-tickets. This potentially spur the sales of budget airlines and fostered the industry development. Secondly, point-to-point administration simplified management process to minimize cost incurred. One of the examples would be adopting a fixed sector distance within 1500km, this was proved to maximize aircraft utilization through boosting the number of flight per day (Fageda, Suau-Sanchez & Mason, 2014). Better usage of airplane guaranteed a higher cost-effectiveness in production enabled budget airline to boom …show more content…

Lower cost of flying urged more people to go on travel in a higher frequency and generated more income for entrepreneurs. This further intensified the air-bus market with additional competitors entering and existing firms were reorganizing strategically. Therefore, it was recommended that budget airline acquired another possible competitive edge, other than employing lower price, to establish an unceasing growth.

References
Fageda, X., Suau-Sanchez, P., & Mason, K. (2014). The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe. Journal Of Air Transport Management, 42, 289-296. http://dx.doi.org/10.1016/j.jairtraman.2014.12.002
Peterson, B. S. (2008, 12). Navigating: Air travel's new reality. Condé Nast's Traveler, 43, 69-n/a. Retrieved from https://search.proquest.com/docview/218561489?accountid=29018
Pilarski, A. (2014). IATA Airline Cost Conference. AVITAS, Inc. Retrieved from https://www.iata.org/whatwedo/workgroups/Documents/ACC-2014-GVA/fuel-price-on-ac-economic-life-Avitas.pdf
Westermann, D. (2012). The impact of low cost carrier on the future of pricing and revenue management. Journal of Revenue and Pricing Management, 11(4), 481-484.

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