Airline Pricing Strategies have undergone a great deal of transformation over the years.
Today, its importance lies in providing excellent customer services to passengers while generating plentiful profit for the airline industry.
For making it possible, revenue management specialists work to provide the right services to the right customer at the right time and at the right price.
In this article, we will talk about different types of airline pricing strategies, which one is the best among them, and the factors that affect airline pricing decisions so that you will always be prepared for offering the best rates to the passengers.
Let’s start with the popular pricing tactics airlines uses.
Have a Look at 4 Key Pricing Strategies for the Airline Industry
As per the unique airline business models, airlines adopt varying pricing strategies that help them generate hefty revenue.
Thus, we have listed the 4 most common types of pricing strategies that airlines generally use to enhance their revenue management.
All these include –
1. Competitive Pricing Strategy
A competitive pricing strategy is a pricing method in which the setting of one’s fare is based on the fares of competitors.
Usually, airlines utilize smart technology like flight price API to get insights into competitors’ pricing.
Technologies like flight pricing APIs help airlines keep a check on the pricing of the overall industry.
2. Penetration Pricing Strategy
It’s a method that is used by newcomers in the industry to gain a significant market share quickly.
Airlines that are recently introduced in the industry usually adopt a penetrating low fare to entice customers to fly on their flights and quickly make their place in the market.
3. Lowest Pricing Strategy
The lowest Pricing Strategy is another type of pricing tactic adopted by airlines to keep their fares lowest from the rest.
Usually, airlines that adopt this type of strategy focus on distinguishing themselves as the lowest-price provider in the market, in which they compete.
They adapt to the lowest cost of operations and ensure to keep their operating costs at the lowest to provide cheaper airfares.
A low-cost pricing strategy might not seem lucrative that generate massive revenue.
But, it is because these pricing strategies are designed to keep the flight fare lowest but charge a bit higher on other services like food, beverages, baggage, and more.
To get a deep insight into the lowest pricing strategy, check out the Ryanair (the most popular airline for the lowest prices) case study.
4. Value-Based Pricing
Value-based pricing strategy is the same as its name suggests and is based on travelers’ perceived value of a product or service.
Also, it keeps a check on the customer’s willingness to pay to determine their pricing.
One way of finding out how much your customers are willing to pay is by running surveys online and setting pricing accordingly, which includes your profit margin as well.
If you have a WordPress website, you can easily create a survey using a survey maker plugin.
To know more about value-based pricing and how it is done in the airline industry, head over to this article.
What Is the Best Pricing Strategy for Airlines and Why?
Dynamic pricing strategy is considered to be the best pricing strategy for the airline industry.
Just as hotel rooms and holiday lets rates often vary during peak holiday seasons, airlines also experience similar variations in their pricing.
In short, dynamic pricing allows the airline industry to set their pricing on the basis of real-time, demand, inventory, and other factors.
For creating dynamic pricing strategies, the airline industry uses different airline pricing softwares such as Flight Pricing API for pulling flight data and various data analytics tools to predict future demand and then adjust prices accordingly.
The benefits of dynamic pricing include:
(A) Maximizing revenue
Dynamic airline prices are set using flight forecasting data and historical data that allows airlines to charge more for seats in high-demand seasons and less for less popular seats, which maximizes revenue.
(B) Increasing efficiency
Dynamic pricing also helps airlines to sell seats that they might lose due to unfair high pricing according to the current market trends. Which increases efficiency and reduces the risk of revenue loss.
(C) Improving customer satisfaction
Changing pricing according to seat types is also a part of the flight’s dynamic pricing strategy. By charging different prices on the basis of different seat types. Airlines can offer a wider range of options to customers. Which can improve customer satisfaction and loyalty.
(D) Responding to market changes
Dynamic pricing allows airlines to quickly and easily respond to changes in market conditions, such as increased competition or unexpected events. Which helps them to make sure they are not over and undercharging.
(E) Data-driven decision-making
Dynamic pricing is based on data and analytics, which allows airlines to make pricing decisions that are based on solid data.
Now you’re aware of what benefits dynamic pricing strategy can bring to your airline business.
So, why not give it a try?
Although dynamic pricing is challenging to implement. But, you can leverage its benefits using the right technology to get accurate data such as FlightAPI to search flight prices, locations, flight names, dates & times.
As well as a good understanding of your market and customers.
If you’re ready to implement dynamic pricing to skyrocket your airline business revenue.
Hold on, and check out the factors that affect airline pricing decisions.
What Factors Affect Airline Pricing Decisions?
Airline Pricing Decisions vary greatly depending on numerous factors. And, here they are:
(A) Market demand
The level of demand for a flight or route can affect how an airline prices its tickets. If there is high demand for a flight, the airline may charge higher prices. Conversely, if there is low demand, the airline may lower prices to fill their seats.
Changes in competitor’s pricing can have a greater effect on your airline’s ticket selling. To be competitive you can adjust your prices based on the prices of your competitors for the same flight or route.
(C) Cost of operations
Airlines need to consider the cost of operating the flight, including fuel, maintenance, and labor costs while setting ticket prices to make sure they are profitable.
(D) Route network
Pricing decisions may also depend on the route network of the airline. For example, prices for flights between major or popular cities may be higher than prices for flights between smaller cities. For getting flight route data, you can use FlightAPI.
Airlines also adjust prices based on the time of year, as demand for flights may vary depending on the season.
For example, prices for flights during the peak summer travel season may be higher than prices for flights during the off-peak winter season.
(F) Airline’s business model
Some airlines have a low-cost business model that focuses on keeping prices low and charging for extra services, while others have a full-service model that includes amenities such as meals and baggage handling and charges higher prices.
(G) Distribution channels
Airlines may charge different prices for the same flight depending on where or how a customer books their ticket. For example, prices may be different for tickets booked directly through the airline’s website versus through a travel agent or online booking platform.
These factors are meant to keep on the top of mind while deciding pricing strategy for the airline industry.
If you still have a few questions regarding it, read the FAQs, and you might get the answer.
Frequently Asked Questions:
The key to airline profitability lies in setting competitor-based pricing to get more flights ticket sold. It is important to provide your customers competitive services to attract them to your business and thus attain higher profits. The more competitive your pricing is, the higher the chance of attracting more customers to your business and boosting profitability.
Often airlines use a blend of different pricing strategies and take note of multiple factors before deciding their prices. It might include the cost of the aircraft, the total amount of fuel, operating costs of the airport, salaries of the workforce, and their profit margin.
In short, they decide the final flight pricing after removing the total operational costs plus their profit margin and dividing them by the average number of passengers to cover their costing.
There are several pricing models used by airlines, including:
- Yield management: Similar to revenue management, but focuses on maximizing revenue per seat or per flight.
- Dynamic pricing: This model adjusts prices in real time based on demand and other factors.
- Fixed or Static pricing: This model sets prices based on a predetermined pricing structure, regardless of demand.
The best pricing model used in the airline industry is dynamic pricing which is based on current market demand and prices.
However, the best pricing model for an airline will depend on its specific business goals, route network, and competitive environment. Some airlines may find that a combination of different pricing models works best for them.
Airline pricing strategies are complex and involve a combination of different approaches to optimize revenue and stay competitive in the market.
These strategies allow airlines to adjust prices based on demand, market conditions, competition, route network, and other factors.
The key to successful airline pricing is understanding the market, and target customers, and being able to respond quickly to changes in market conditions.
Additionally, having the right technology, data, and analytics to make data-driven decisions is crucial.
The best pricing strategy for an airline will depend on its specific business goals, competitive environment, and route network. But, a combination of different pricing models can also work for them.