Marketing

Subject 8: Pricing policy of lowest-fares, low-cost airlines companies (price strategies).

A. OVERVIEW OF LOW COST AIRLINES:

I. Who and what are the low cost airlines?

Recent days, we have get used to traveling by air around the world or even within a country Therefore, airline industry has developed incredibly in the last few decades . However, many people still refuse to “fly” because of high fares they have to pay. Therefore, there has been a brand new service which carries people by air with very reasonable prices. It is so-called “low-cost carrier” or “low-cost airline”. A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that generally has lower fares. For example, the main low-cost airlines operating to and from the UK are: EasyJet, BmiBaby, RyanAir, FlyBe . However, the largest and most successful low-cost airline is Southwest in the US.

The low-cost model was pioneered by Southwest Airline and European low-cost carriers have all followed this to an extent:

1. high seating density and load factors

2. uniform aircraft types (usually the 737-300)

3. direct booking (internet/call centre - no sales commissions)

4. no frills such as “free” food/drinks, lounges or ‘air miles’

5. simple systems of yield management (pricing)

6. use of secondary airports to cut charges and turnaround times

Due to all of these characteristics, a successful low-cost airline is certainly more profitable than a traditional one. RyanAir, for instance, has a market capitalization of about £3 billion and 22.7% of operating margins ( 1999 ) which doubles the one 11.9% of United Airlines .

II. What is the market for the low cost airlines?

Entry spurs an increase in demand (often one-off)

Data is for passengers on routes to London. Source: CAA airline/airport statistics

We can see that growth averages 10.5% in the first two years after entry of a low...