July 2009Transport and Logistics Department1Chapter 9Airline Pricing, Demand Output DeterminationDr. Rohafiz binti SabarLogistics and Transport DepartmentSchool of Technology Management and LogisticsCollege of Businessemail: [email protected]
Airline PricingRelationship between Airline PricingPolicy and Corporate ObjectivesImpact of Deregulation and Technologyon FaresExamplesFuture Prospects
Airline Pricing & Corporate ObjectivesAn airline’s “primary aim must be to sell thecapacity it is prepared and able to offer atprices which will generate sufficient demandto generate an ‘adequate’ level of profit” –(Doganis 2002)What is “adequate” and who are airlinesseeking to please?
Airline Pricing & Corporate Objectives - 2State-owned airlines may have objective of maintaining service tospecific destinations, providing for inbound tourism and “breaking even”Privatised airlines may have objective of producing an adequate rate ofreturn on shareholder value or specific rate of return on their currentassetsIn addition privatised airlines may have desire to produce an adequatereserve fund to self-finance acquisition of new assets – as shown bySingapore Airlines
Airline Pricing – route vs networkWhilst an airline may have a global corporateobjective, their pricing policies will vary byregion and route, depending on economicconditions, level of competition and otherexternal factorse.g. British Airways may have an aggressive pricingpolicy on certain routes due to new-entrantcompetition, but maintain the status quo on routeswith less fare competition
Airline Pricing – Factors to ConsiderWhatever airline’s objective is, pricing willrequire an understanding of the costs foroperating the route and the potential demandFor Break-even: Total Revenue = Total CostsFor Profit: Total Revenue > Total Costs