A common experience in buying airline ticket is to search multiple online discou

Question

A common experience in buying airline ticket is to search multiple online discount services for the cheapest fare from point A to point B. Airline ticket pricing is opaque and some lucky customers get very attractive pricing on any given day or time. In answering the following questions, make sure that you offer supporting arguments for your statements.

A: Explain the pricing strategy you studied that underlies this experience?

B. Identify another industry that also follow the same approach to pricing their services?

C. What are the common factors between airline ticket pricing and the industry you selected in question B that would help explain similar pricing strategy?

Explanation / Answer

1) Explain the pricing strategy of airlines industry

Airline industry follows dynamic pricing strategy. It means, the initial prices that are kept flexible based on the current demand of the airlines. As the demand for the airline tickets increases, the prices are also changed or increased by the inbuilt algorithms which takes certain conditions into being such as competitor pricing, seasonal demand, and other market conditions.

Airlines often change prices depending various factors -

Sometimes the algorithm of the airlines follows the demand pattern. It means, say for example when the booking opens for an airline, the initial cost will be less to attract more customers. once say 10% of the seats are booked, the price of the airline tickets increase a bit and when 30% of the tickets are booked, they increase further. With the 50% booking, it further increases, till it comes to a level where, for every ticket booking the price of the subsequent tickets increase. This trend follows till the last minute booking where the last minute tickets sell for the premium price. This way, airlines industry surge their ticket prices.

2) Identify another industry that also follow the same approach to pricing their services?

Other industry that follow the same approach as that of the airline industry is - Hospitality industry. Hotels generally follow this trend of the dynamic pricing. Based on the demand for the rooms, the cost of the rooms increase to match the demand and supply. Their main aim is to check the highest price customers are willing to pay. Based on that, initially they give discounts or lower the prices to attract the customers. Once the demand increases, the prices of the rooms increase. Sometimes they even charge royalty for the highly demanded rooms. This form of the price discrimination is used to maximize the revenue of that market segment based on the maximum price customers afford to pay for the rooms and their services. This increase in the prices caters to equalize the cost when there is a low pricing.

Even the hotels in the hospitality industry change the prices based on the day of the week, and time of the day which makes the hotel increase their revenues, this in turn keeps the low demand periods going without any disruption in the services.

3) What are the common factors between the airline ticket pricing and the hotel industry?

Every thing is almost similar except that this is a hospitality industry and that is an Aviation industry. Common factors are -

All of the above are common among both the industries. Based on all the above factors, as the demand fluctuates, the pricings also fluctuate, that is either they increase or decrease on the demand.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.