Introduction In recent years, the competition between low-cost airlines / no frills airlines and legacy airlines has arouse a heat debate, especially In North America. Although airline Industries Including diverse tasks, deciding the price of airplane ticket might be the most significant part In marketing. This assignment attempts to analysis the different pricing strategies that Airline companies make to enhance competitiveness in North America. Moreover, these comparisons will be supported by examples of low-cost airline (Southwest Airline) and legacy airline (American Airlines).
Firstly, cussing the operation, which is called low-cost carrier. Secondly, analysis their strategy in defining price. Final parts are a development with these points and a proof of the successful experiences in the airline industry. Key point 1 “Pricing” is a useful strategy for Airline Companies to increase their profit. It is widely believed that Airline Industry has become intense because there are over 200 airlines companies attempt reducing price of airplane tickets. Facing the intense competition, Low Price might be the tactic used by airlines.
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In addition, “Fixed cost”, the basic costs o malting a company, Is the other difficulties In traditional airline companies for covering financial situation due to problem of Inflation. The two challenges threat airlines in recent years, hence some traditional airlines transfer to Low-Cost carrier (LLC) to economize unit costs. Furthermore, the cost in Human Resource (HRS)/cost of employees conceivably rise to the most expensive part in fixed costs, however the drawbacks usually are ignored by traditional airlines (Laurie H. 006. POP 5). In other words, LLC is a conception that responds the lower cost to lower price. Southwest airline, one of the LLC Airline Company, has become a famous case learned by Ryan Air, Easy Jet and other Low-Cost Carrier, because Southwest airline reduced not only the cost in their human resource department but also In many approaches Including cost of entertainment, cargo, meal and additional service (Hall, A. 2007 Completed In Partial Fulfillment of the Requirements of MM 5210 up).
On the contrary, even though lower pricing cost seems logic, there are arguments claimed by gurus: Ryan Gannett (2012) doubted that there is a dramatic growth (182. 0%) in average of fuel per gallon from 2005 to 2011, passengers are frequently demanding equipment and services added to cabins. Can the constantly increased cost be covered by Southwest airline? However, according to the Flight Global Data Research Team (2013 Top 1 0: The Americas): Southwest Airline achieved number one (133. 2 Passengers per mile) of amount of sales in 2013 (Manuel A. H. And Steven N. W. 2013).
Furthermore, International Air Transportation Association (DATA) published the newest rank In 2014: Southwest airline carried 115. 323 thousand passengers to e the champion as well. These methods help themselves becoming more competitive than Lorene companies and successful. Into the future, and this rise will put an ever greater strain on Southwest’s already depleted margins. If oil prices are brought under control with certainty, then Southwest is a great investment; but until then, Southwest is Just too vulnerable to oil prices. Key point 2 An accurate price can support a company to increase their profit.
In recent years airline, companies prefer to follow the dynamic price system to match the demands f customers, therefore airline companies define the most expensive airplane ticket on Friday night and the cheapest on Tuesday morning due to “Travel scheme” which is choose to travel on weekends then return on Sunday or Monday, regard this issue, airlines faced the problem: middlemen sell Open-Jaw tickets on weekends and buy Open-Jaw tickets on Tuesday. Open-Jaw ticket is “Return ticket” can be used in any time and separated in two single tickets to sell to two customers.
These tickets tremendously declined the revenue when cheaper ticket was used in the peak period ND customers could buy another ticket in other airlines as well, it generate the affection: the Revenue, Coverage, Loading and Reputation. (Tim H. 2011). When others airline were used to follow dynamic price system, American Airline (AAA) announced “Saturday night stay over restriction” to against this risk. The restriction aims the problem that is caused by open-Jaw ticket on weekends (Tim H. 2011 IPPP). By using the methods, AAA are able to earn bonus as much as $500 million a year from sass.
Despite decision is selected by passengers, The most important effects in dynamic price discrimination arise not from an attempt o extract more money from the consumer, but from addressing incomplete markets, and in particular from the value and costs of advance contracting. Key point 3 In the opposite, experts illustrated that the ticket price should be bundled with demand, due to the price is decided by customers’ demand (Diego E. 2013). Therefore, airline companies often need to consider the priority between price and loading in different timing.
To be more precise, sometimes the asymmetric price might be caused by lower rate of loading (Manuel A. H. And Steven N. W. 2013). As a tater of fact, the lower demand shows the ticket price cannot be increased even in boom season; this is the reason why some gurus recommend finding the demands first and next defining price. However, the Price has to respond the fixed cost, hence airlines need to think increasing profit with Demand and Cost (Diego E. 2013). Nevertheless if the greatness of seats were released to sold in the day near the departure date, it is possible the high-risk will be faced is large amount of empty seat (Diego E. 013). Conclusion To sum up, this essay has shown that there are clear methodologies of using pricing tragedy in the airline industry of North America. As mentioned in my second reducing costs; moreover the case of Southwest airline proofs it in different approached, and the low-cost strategies help them to become the most popular airline in north America in 2013-14. Nevertheless, in the fourth paragraph, it indicates the significance of defining price with float system by legacy airline companies, because the different timing reflects different cost and factors.