Distortions of airline revenues: why the network airline business model is broken

Tretheway, Michael W.

doi:10.1016/j.jairtraman.2003.10.010

Cited by 75 publications

(43 citation statements)

References 1 publication

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“…Furthermore, network carriers implement certain conditions for their discounted round trip fares in order to exclude the priceinsensitive business travellers from these cheaper flight tickets. Very common is the restriction of spending at least one Saturday at the destination, since business people usually travel on weekdays and return at the latest by Friday (Schulz, 2009;Tretheway, 2004). In comparison, the tariff system of low-cost carriers is very simple.…”

Section: Airline Types and Pricingmentioning

confidence: 99%

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State of the art of pricing policy in air transportation: network carriers vs. low-cost airlines

Wehner

López-Bonilla

et al. 2018

Tour Manage Stud

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The modern air transport industry is highly competitive. To survive in the market, the implementation of a successful marketing strategy is fundamental. In particular, an effective pricing policy has become crucial for airlines to remain profitable. Correspondingly, the different types of airline in the market have also established very distinct pricing policies. The present study is based on a literature review and presents the state of the art of pricing policy in air transportation. The aim is to compare and discuss the pricing strategies of network carriers and lowcost airlines. Special attention is paid to Revenue Management, which is a very important management tool used by airlines to take advantage of the differences in willingness to pay of passengers. The pricing policy, however, depends on the overall business strategy of the airline. Results show many differences, resulting from the fact that these two types of airline are characterized by very different fundamental business models and, correspondingly, also target groups. Since network carriers and also low-cost airlines have adjusted their pricing strategies lately, these recent developments will be discussed as well. This paper adds to the knowledge of this topic because it presents the most up-to-date and complete study on pricing regarding network carriers vs. low-cost airlines.Keywords: Pricing policy, Revenue Management, willingness to pay, network carriers, low-cost airlines. ResumoA moderna indústria do transporte aéreo é altamente competitiva. Para sobreviver no mercado, a implementação de uma estratégia de marketing bem-sucedida é fundamental. Em particular, uma política de preços eficaz tornou-se crucial para as companhias aéreas continuarem lucrativas. Os diferentes tipos de companhias aéreas no mercado também estabeleceram políticas de preços muito distintas. O presente estudo baseia-se numa revisão da literatura e apresenta o estado da arte da política de preços no transporte aéreo. O objetivo é comparar e discutir as estratégias de preços de companhias aéreas de linha e companhias aéreas de baixo custo. Atenção especial é dada à Gestão de Receitas (Revenue Management), que é uma ferramenta de gestão usada pelas companhias aéreas para aproveitar as diferenças na disposição de pagar dos passageiros. A política de preços, no entanto, depende da estratégia geral de negócios da companhia aérea. Os resultados mostram muitas diferenças, resultantes do facto de que esses dois tipos de companhias aéreas são caracterizados por modelos de negócios fundamentais muito diferentes e, correspondentemente, também grupos-alvo. Como as operadoras de rede e também as companhias aéreas de baixo custo ajustaram as suas estratégias de preços ultimamente, esses desenvolvimentos recentes também serão discutidos. Este documento contribui para o conhecimento deste tópico, pois apresenta o estudo mais atualizado e completo sobre preços de companhias aéreas de linha versus companhias aéreas de baixo custo.Palavras-chave: Política de preços, Revenue Manage...

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Section: Airline Types and Pricingmentioning

confidence: 99%

“…Due to the fact that these airlines only offer one travel class, the tariff system is reduced to only one tariff, which includes very strict conditions (Cento, 2009). Besides, the flights are offered individually, meaning that no special tariffs for return flights apply (Tretheway, 2004).…”

Section: Airline Types and Pricingmentioning

confidence: 99%

State of the art of pricing policy in air transportation: network carriers vs. low-cost airlines

Wehner

López-Bonilla

et al. 2018

Tour Manage Stud

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“…Low cost competition on the short-haul links undermined the traditional carriers' ability to price discriminate, as noted by Tretheway (2004), owing to the introduction of cheap one-way fares.…”

Section: Literature Reviewmentioning

confidence: 99%

Pricing structure optimization in mixed restricted/unrestricted fare environments

Meissner

Strauss

2010

J Revenue Pricing Manag

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In recent years, many traditional practitioners of revenue management such as airlines or hotels were confronted with aggressive low-cost competition. In order to stay competitive, these firms responded by reducing fare restrictions that were originally meant to fence off customer segments. In markets where traditional practitioners faced low-cost competition, unrestricted fares were introduced. Some markets, including airline long-haul markets, were unaffected. And here restrictions could be maintained.We develop choice-based network revenue management approaches for such a mixed fare environment that can handle both the traditional opening or closing of restricted fare classes as well as handling pricing of the unrestricted fares simultaneously. Due to technical constraints of the reservation system, we have a limit on the number of price points for each unrestricted fare. It is natural to ask then how these price points shall be chosen. To that end, we formulate the problem as a dynamic program and approximate it with a mixed integer linear program (MIP) that selects the best price points out of a potentially large set of price candidates for each unrestricted fare.Numerical experiments illustrate the quality of the obtained price structure and that computational effort is relatively low given that we need to tackle the large-scale MIP with column generation techniques.

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“…Traditional airlines developed a very sophisticated system of yield management that aimed to minimise consumer surplus and divide the market according to different degrees of willingness and ability to pay (Tretheway, 2004). The consequence was a wide range of different fares for essentially the same product.…”

Section: Revise Pricing and Remove Minimum Stays On Low Faresmentioning

confidence: 99%

End of the free lunch? The responses of traditional European airlines to the low-cost carrier threat

Dennis

2007

Journal of Air Transport Management

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Distortions of airline revenues: why the network airline business model is broken

Cited by 75 publications

References 1 publication

State of the art of pricing policy in air transportation: network carriers vs. low-cost airlines

State of the art of pricing policy in air transportation: network carriers vs. low-cost airlines

Pricing structure optimization in mixed restricted/unrestricted fare environments

End of the free lunch? The responses of traditional European airlines to the low-cost carrier threat

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