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Comprehensively evaluates the current state of the airline industry
Price discrimination essay
Price discrimination essay
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Name: Reema Alsmari
ID Number: 13113747
Price Discrimination in The Airline Industry
Intermediate Microeconomics
Words count: 1646
Price discrimination involves sells and charging the same product or service to different consumers for different prices. The monopolist needs to use price discrimination to decrease the amount of consumer’s surplus and enhance more profits. Companies can charge different prices to different individuals not based on differences on the cost of production. It depends on several criteria.
Each consumer has difference elasticity of demand, which drives the strategy of price discrimination. The company charge high price for consumers with an inelastic demand. However, lower price are being charged from
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This contract will benefit the large company’s employees by having a discount on each airline ticket. It is a price discrimination strategy, where different prices are charged for different consumers. The airline industry implies frequent flyers programs, which is very important in this particular industry. This program is a kind of price discrimination, because it consider as a kind of discount for specific customers. This program gives the advantage of any members of such a program to earn member points for each flight. This member points can be used to get a free …show more content…
By doing this, the low quality ticket is now less attractive for group 1. The airline now can charge high price of the high quality ticket at Q = 10 and still be sure that passengers of group1 will buy it. As a result for this strategy, the consumer surplus for group 1 will be equal to area B. Not to mention, group 2’s consumer surplus will be equal to zero. The third class of price discrimination is Third degree PD. It is the action of charging a different price to different consumer groups. Time of use in the airline industry can be a perfect example of third degree PD. The monopolist in the airline company when practicing 3rd degree can differentiate between passengers. The airline company will have to deal with two groups of passengers. Passengers who buys tickets at peak time versus passengers who buys it at
Spirit makes our fares so low because they know that draws in the attention of the consumer. Once they have your attention you’re shocked at the price so you go for the deal, oblivious to the fact that you walked into their trap. Southwest’s symbol for shareholders is LUV while Spirit’s is SAVE. They are not the only companies to start to enter into these paths. Hotels, rental cars and cruises are all faced with the same choice to embrace the LUV or the thriftiness with SAVE (Elliot
of price versus service in the airline industry as a whole, as well as, the
Mason, K. J. (2001). "Marketing low-cost airline services to business travellers." Journal of Air Transport Management 7(2): 103-109.
Spirit Airlines has long been considered an unorthodox airline. They, of course, address all four P’s in their marketing strategy; however, they focus a large amount of their effort on price and promotion. They focus on cutting price through “unbundling”. They focus on promotion through taking advantage of social issues and breaking news. Many advertisements and deals promoted by Spirit have given the public a definite shock-factor. Spirit has made two objectives very clear: they are furious at getting the customer the lowest fare possible by any means necessary, and they will similarly use any means necessary to get those potential customers to notice those fares. Such a blatant marketing strategy works. Even going up against some big competition, Spirit finds ways to be competitive and successful in flagrant fashion.
Even though Southwest offers no-frills, there is still a high degree of customer satisfaction that continuously builds customer loyalty for the company. As mentioned, Southwest offers low prices on their airplane tickets. Also, Southwest is renowned in the airline industry for its short turnaround time on arrivals and departures. And since people's biggest concern nowadays is money and time, having low price airline tickets to cater their traveling needs in a shorter period of time will surely satisfy them. Moreover, aside from the low prices offered, what attracts to customers is Southwest’s way in dealing with them. The employees of the airline treat their customers well and really listen to their needs.
Before to select the proper alternative, three alternatives were analysed and evaluated under four decisions criteria: customer experience, cost, growth rate / market penetration and ease to implementation (See Exhibit 2: Factor Analysis). Between all the alternatives, it was suggested that Southwest Airlines enters to New York City by bidding the slots and gates at the LGA (See Exhibit 3: Alternatives Analysis). This alternative sustains the challenge of changing the customer experience which means adding more flights from and to the East; furthermore, entering to new markets will reinforce “the power of the network” through LGA. At the same time, this decision will allow signing more code-sharing agreements with other airlines flying to international destinations and offer new products and services to LUV customers as loyalty rewards, in-flight internet, onboard duty-free purchases, etc.; as a result of this, it will increase passenger’s insights and experiences by flying with Southwest Airlines. Nevertheless, there is potential risk by selecting this alternative, in the recent years the energy prices has had a huge increase affecting costs, fares and even capacity needed, however Southwest Airlines has been able to hedge fuel for decad...
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
In order for revenue management to be successful, four fundamental conditions must be met. The first requires a permanent amount of supply available for sale. Meaning, a fixed amount of seats per aircraft should be available per route. Second, resources sold must be perishable. Seats are a perishable items, if not sold they terminate without value. Third, the most vital portion of r...
Dixit, A. (2000). Growth of discounting in the airline industry: Theory, practice, and problems. (Order No. 9978379, Georgia Institute of Technology). ProQuest Dissertations and Theses, , 330-330 p. Retrieved from http://search.proquest.com/docview/304592352?accountid=8364. (304592352).
In an attempt to capture market share, many airlines in India are flying below their cost, thus incurs heavy losses.
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...
The company’s cost leadership strategy of keeping their fares low to ensure frequent and convenient travel along with its playful, fun poking advertising, exciting promotional ways, and various vibrant ways of operation enabled the company to expand exuded its effect on both customer and competitors, thus lowering the prices in the new market. This is the ‘Southwest
There are other ways in which airlines customers are segmented. The airline services are divid...
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).