ATM_9_Airline Pricing, Demand Output Determination.ppt -...

July 2009 Transport and Logistics Department 1
Chapter 9
Airline Pricing, Demand Output Determination
Dr. Rohafiz binti Sabar
Logistics and Transport Department
School of Technology Management and Logistics
College of Business
email: [email protected]

Airline Pricing

Relationship between Airline Pricing
Policy and Corporate Objectives

Impact of Deregulation and Technology
on Fares
 Examples
 Future Prospects

Airline Pricing & Corporate Objectives

An airline’s “primary aim must be to sell the
capacity it is prepared and able to offer at
prices which will generate sufficient demand
to generate an ‘adequate’ level of profit” –
(Doganis 2002)

What is “adequate” and who are airlines
seeking to please?

Airline Pricing & Corporate Objectives - 2

State-owned airlines may have objective of maintaining service to
specific destinations, providing for inbound tourism and “breaking even”

Privatised airlines may have objective of producing an adequate rate of
return on shareholder value or specific rate of return on their current
assets

In addition privatised airlines may have desire to produce an adequate
reserve fund to self-finance acquisition of new assets – as shown by
Singapore Airlines

Airline Pricing – route vs network

Whilst an airline may have a global corporate
objective, their pricing policies will vary by
region and route, depending on economic
conditions, level of competition and other
external factors
 e.g. British Airways may have an aggressive pricing
policy on certain routes due to new-entrant
competition, but maintain the status quo on routes
with less fare competition

Airline Pricing – Factors to Consider

Whatever airline’s objective is, pricing will
require an understanding of the costs for
operating the route and the potential demand
 For Break-even: Total Revenue = Total Costs

For Profit: Total Revenue > Total Costs

Influence of Operating Costs
