Airline pricing & demand
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Price is the most important factor influencing demand for airline seats and cargo space since deregulation. Economists have emphasized the role of price in determining demand levels. Pricing in the airline industry is complex due to the industry's transition from regulation to deregulation. Demand is defined as the quantity consumers are willing and able to purchase at various prices over time. There is an inverse relationship between price and quantity demanded known as the law of demand. While price is key, non-price factors like passenger preferences, the number of passengers in a market, passenger income levels, competitor prices, and expected future prices also influence airline demand.
Airline pricing & demand
- 3. Of all the marketing variables that influence the potential sales of airline seats and cargo capacity, price has received the most attention since deregulation. Economists have emphasized the price variable in describing the level of demand. Pricing remains a very complex issue in many industries. In the case of air transportation, it is even more complex because of the transition in recent years from a highly regulated industry to a deregulated environment.
- 5. Demand is defined as the various amounts of a product or service that consumers are willing and able to purchase at various prices over a particular time period. A demand schedule is simply a representation of a series of possibilities that can be set down in tabular form. There is an inverse relationship between price and quantity demanded. Economists have labeled this inverse relationship the law of demand.
- 6. Air Carrier’s Demand for Air Transportation per Month Between Two Cities (hypothetical data) Ref John Wensveen – Air Transportation
- 8. Assumption --- Price is the key variable and all others factors are insignificant – however, non-price determinants exist. The major non-price determinants of demand in the air travel market are: (1) the preferences of passengers, (2) the number of passengers in a particular market, (3) the financial status and income levels of the passengers, (4) the prices of competitors and related travel expenses, and (5) passenger expectations with respect to future prices.
- 10. 1. Preferences of passengers. A change in passenger preferences favorable to an airline - possibly prompted by advertising will mean that more tickets will be demanded at each price over a particular time period, shifting the curve to the right. 2. Number of passengers. An increase in the number of passengers in a market brought about perhaps by improvements in connecting flights or by population growth 3. Financial status and income levels of passengers. This nonprice determinant relates to the state of the economy and the level of such things as personal income, disposable income, and profits (in the case of businesses). Air transportation is very sensitive to fluctuations in the economy 4. Prices of competitors and related travel expenses. An increase in a competitor’s price, all other things being equal, will normally prompt some passengers to switch to your airline. 5. Passengers’ expectations with respect to future prices. Passengers’ expectations of higher future prices may prompt them to buy now in order to beat the anticipated price rises.
- 11. Elasticity of Demand Coefficient of Elasticity Determinants of Elasticity Types of Passenger Fares Pricing Process Intro to Airline Costs Output Determination