4 Airline Pricing / Revenue Management

Question 1

determinants of flights price

Answer 1

Composition of demand (what kind of demand do you have)
Competition

Company target of this leg

Cost of production (e.g. airport charges)

Market potential

Potential air traffic targets of the authorizing agency (government with specific target)

Interest of another airline companies (what are other doing?

Question 2

structure of air passenger tariffs

Answer 2

normal fares (e.g. classes, season, route)

special fares: single passenger vs. group

combination fares

supplements

reduction

Question 3

factors that influence willingness to pay

Answer 3

market segments

frequent flyer system (price reduction / quality increase to look-in customer)

remember: creation of value through customer, few customer generate big income (frequent flyer)

Question 4

Price profile of airline

Answer 4

best price guarantee (the earlier the cheaper) revenue management swiss easy jet

flexible: (up and down but in a increasing way) air berlin

flat rate (helvetic before 2004)

Question 5

yield?

Answer 5

= the revenue per passenger respectively the revenue per passenger km.

yield depend on the average revenue per passenger respective of the SLF

Question 6

how to maximize profit

Answer 6

differentiation by market segment / client category

differentiation by time of consumption

differentiation by time of booking

Question 7

Revenue management

Answer 7

= development and implementation of bares and booking classes as well as the control of the theoretic lead factor along the period (goal: maximize revenues)

the majority of the public buy depending on price but someone will pay a slight premium

instruments: Reservation and booking system

technics of overbooking

selling activities to increase the average return

Proceeds management: generally similar product. e.g. seat on a certain flight sold to different prices in order to increase profit

Capacity management: allocation of optimum seat capacity within the specific booking classes.

Question 8

Revenue management Disadvanteges

Answer 8

understanding of competition and rational behavior of customer

complexity of system leads to an understanding, that prices are unfair

Question 9

flexible prices problems:

Answer 9

learning behavior of customer

tendency towards marginal cost pricing in network industries