CASE 11: Pricing Air Travel

In most of the world, airline travel is available to domestic and international customers Table 11.8 identifies the top twenty largest airlines in Europe during the year 2016, in terms of passengers. Many of the issues described in this chapter apply to international airline operations. For instance, any competitor in this industry would be subject to the various objectives and pricing methods. Each airline's marketing team could choose from the more common pricing goals, including earning profits, improving market share, retaining current customers, enticing new customers, or countering competitive actions Selections would be based, in part, on the airline's financial status, country of origin, age, reputation or image, level of governmental protection and investment, and relevant degree of competition. The pricing methods, based on costs, supply and demand, competition, or profitability, all apply to airlines. The complicating factors are that prices, especially fuel prices, change quickly and dramatically. Supply and demand will be influenced by shifts in economic conditions. Competitors and competitive actions vary widely, as carriers enter and leave the marketplace, while some merge in various types of alliances. Profit targets become difficult to establish in such volatile markets. In addition, issues such as terrorism affect operations and prices, as airlines seek to provide security for flights, passengers, and crew members Discounting also affects the international airlines industry. When Ryanair, the low-cost Irish airline, announced plans for flights from the United Kingdom to the United States priced at 10 in the near future, the goal of offering loss leader flights was to gain a foot- hold in the British market. Beyond these concerns, ethical issues are germane, for instance, one common practice among airlines has been to label airline fees, which count as revenue for the company. as "taxes." A lawsuit filed against British Airways accuses that airline of the practice and states that the pricing is deceptive.

TABLE 11.8: Top Twenty Largest Airlines Europe, 2016

Airlines# of Passengers

Ryanair116.8 million

Lufthansa109.7 million

IAG100.7 million

Air France93.4 million

EasyJet74.5 million

Turkish62.8 million

Aeroflot43.4 million

SAS29.4 million

Norwegian29.3 million

Air Berlin28.9 million

Alitalia/

Pegasus24.1 million

Wizz Air22.8 million

Aegean/

S713.1 million

TAP Portugal11.7 million

Finnair10.9 million

Air Europa/

Flybe /

SunExpress/

1.What should be the primary pricing objectives for the companies at the top of the list in Table 11.8? Would the objectives differ for the companies 15-20? Why or why not?

2.Which price setting approach best matches the international airline industry?