Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies
Successful marketing strategies are just as substantial as the engineering for the airlines to survive. Part of the marketing mix is the pricing policies of the aviation industry. This is specifically paramount for airlines to increase the market share in the aviation industry and to generate the revenue desired. Although it is conclusive for the airlines to offer competitive fares, academic studies are rare in such a field. If there are airlines-related academic studies or literatures available, they usually concentrate on the whole marketing mix elements (4Ps) but not on pricing itself. The study aims at highlighting on pricing strategies and O-D markets of FSCs and LCCs based on monitoring of air ticket prices in different markets and in different time periods. Furthermore the authors would like to find out how airlines set their pricing strategies to compete in a fast- growing and highly competitive market. The findings indicated that the airlines’ fares increase monotonically over time, peaking a few days before the departure. The results also revealed that the volatility of fares increase in the last four weeks before departure, which is the period when the airlines can formulate a better prediction for a flight’s load factor (LFs). Airlines attempt to segment the demand in each origin-destination (O-D) market by offering different combinations of price levels and restriction bundles, or fare products, designed to appeal to different groups of potential travelers with different levels of willingness to pay. In an effort to achieve this segmentation of demand, airlines impose purchase and travel restrictions on lower fares designed to act as 'fences' to prevent passengers with higher values of willingness to pay (WTP) for air travel from buying at a discount.