Have you ever talked to a co-passenger on a flight and been surprised to find out that they have been charged much higher or lower for an airline ticket in the same class as yours? This is a common practice in the aviation industry. As much as it might seem unfair, the aviation industry has one of the most dynamic pricing strategies compared to any other sector. The most common pricing strategy in the airline industry that most of us might be quite well aware of is demand-based pricing. During festive seasons or other times of high demand, the airline prices are often at their peak, and during the off-season, the same tickets are priced at much lesser rates. But do you think this is all that goes into consideration for companies in the aviation industry to tweak their pricing strategies?
Common pricing strategies of airline companies
The standard price division in the aviation industry that we all know of is based on the classes – economy, business, and first-class. But you would be amazed to know that airlines have dozens of subdivisions. The airline carriers usually adjust the number of seats allocated to each fare class. When one class gets sold out, the sale price will leap to the next one. Though this practice is commonly being followed currently, it is still way off from the ultimate goals of carriers. Firms in the aviation industry aim at knowing their customers better through loyalty programs, registered users, and cookie tracking since it would help them to offer personalized pricing.
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Companies in this sector have become increasingly complex and fiercely competitive in the past few decades. The growth of the airline network and the drop in the cost of commuting has taken revenue management to whole new levels of complexity. Airline companies have realized that pricing strategies such as Expected Marginal Seat Revenue (EMSR) offer the best ways to optimize fares in real-time.
This technique is useful not only on a given route but taking into account revenue-generating opportunities across the whole airline network. This is the answer to if you have wondered why flying from London to Dubai costs almost the same as flying all the way to Manila, also via Dubai. Aviation industry companies may prefer to keep seats on the London-Dubai route for higher-value passengers that fly longer onward journeys and will use pricing strategies to discourage those aiming to fly shorter trips.
Companies in the aviation industry usually make some reasonable assumptions about the profile of traffic on a particular route and then alter their prices accordingly. For example, London to the Maldives has a marked leisure profile; this has an impact not only on the ticket prices but also on the way pricing strategies change over time depending on the on and off-seasons. If the airline assumes that passengers traveling to leisure destinations will tend to book relatively before their holidays, it may start pricing seats on that route relatively high. Based on the market response, the prices would then be altered accordingly.
The rising competition in the aviation industry gives carriers good enough reasons to not overcharge customers. However, they must be careful not to undercharge customers as well. Airlines tend to aggressively lower prices when there are still empty seats left before a flight departs. However, if this becomes the norm, there could be a serious risk of undermining the brand and alienating higher-value passengers. Applications such as Bidflyer and Plusgrade have developed applications that allow airlines to sell upgrades to the highest bidder through an auction mechanism. This acts as an anonymous way to get passengers to tell the airline how much they’re willing to pay for premium services.
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