What's The Better Way To Price The Product?

[enilria]

I see a lot of people complaining about "stupid pricing" in various threads, so I thought I'd create a thread for people to brainstorm a better mouse trap.

I tend to think the problem is not the pricing, but the pricing is merely a symptom of too much capacity. If you charged more fewer people would fly and more seats would go empty. I tend to think that is overall negative. As long as you have so many seats to fill there really are no options to raise fares.

What do you think?

The rules are:

1) Your solution can't require collusion which would make the solution illegal to implement. For example, if one airline raises fares there is very little incentive for the other airlines to match it when they can gain by now being cheaper UNLESS they illegally agree to all raise fares.

2) Your solution must add up mathematically. For example, if you decide to only have one fare instead of 20 in each market, you must explain how you will make up the revenue lost from all the higher fares that were eliminated.

3) If your solution is similar to something somebody already tried like Delta's Simplifares (lower walk-up fares) or American's Value Pricing (mileage based fares) you must explain why it will work this time when it failed the last time.

Go at it.

 

[resqicunurse]

I see a lot of people complaining about "stupid pricing" in various threads, so I thought I'd create a thread for people to brainstorm a better mouse trap.

I tend to think the problem is not the pricing, but the pricing is merely a symptom of too much capacity. If you charged more fewer people would fly and more seats would go empty. I tend to think that is overall negative. As long as you have so many seats to fill there really are no options to raise fares.

What do you think?


I'm curious as to why the rules can't be really simple..

1. Price the route to cover the expense & break it down by flight...surely the airline can figure this out. If it's $20,000 to fly XXX-XXX and you have 150 seats, then the basic fare should be $134.00 (assuming a full plane). Vary the base fare by %'s for:
A. First class (X% of basic, e.g. 2x = $268 for this leg)
B. Unrestricted Coach (X% of basic, e.g. 1.5X = $196 for leg)
etc.... for sale fares

2. Eliminate the cumbersome, complicated fares. If you really want to simplify things, then do so. You should only need a few "fare levels" for any given leg.

3. Price RT's as the sum of all the legs with perhaps a % off the total.

Maybe I am oversimplifying, but I would think that this approach would meet the costs associated with flying the routes, keep the fare structure simple, and make everyone's life easier.

 

[usairways_vote_NO]

1) Your solution can't require collusion which would make the solution illegal to implement.  For example, if one airline raises fares there is very little incentive for the other airlines to match it when they can gain by now being cheaper UNLESS they illegally agree to all raise fares.

[post="247610"][/post]​

Collusion is already built in as fare changes are known by every airline almost instantly unfortunately it almost never works when raising fares.

 

[whlinder]

One of the problems, IMHO, with a simple pricing plan for US Airways is that extremely simple pricing can leave revenue on the table. US Airways is not a simple airline so extremely simple pricing will not produce the revenue necessary. US needs to move toward rational pricing. Pricing also combines more things than just setting the fares and rules. It needs to be partnered with marketing (loyalty program) as well as the supply of seats on the route.

 

[usairways_vote_NO]

I tend to think the problem is not the pricing, but the pricing is merely a symptom of too much capacity. 

[post="247615"][/post]​

I do agree with you yet I don't think the over capacity necessarily means there are too many airlines.

 

[bookmdano]

I see a lot of people complaining about "stupid pricing" in various threads, so I thought I'd create a thread for people to brainstorm a better mouse trap.


IMO, the airlines encourage the customers to deplete the airlines inventory by offering roundtrip fares lower than oneway fares. They entice the customer to purchase discounted roundtrip tickets when all the customer wants is a oneway.
They offer roundtrp tickets for $98.00 versus a oneway ticket for $600. The customer today has access to the fare structures through the internet and can plainly see that they can reserve a bogus return flight for which they have no intention of using and pay the $98 price and block 2 seats instead of just 1.
The only solution I can see is, Never Offer a Roundtrip for Less Than a Oneway.
The airlines need to bring back the business traveler, but not by price deception. The airlines can bring back the business travelers by treating them with respect and dignity and fair fares.
The inventory depletion also applies to Roundtrip Flight Credits (bump-tickets) and Frequent Flyer Award tickets. The RTFC program requires that the customer book a return flight whether they want to or not. Again, anyone can book a bogus flight, so why would the airlines have such a bogus rule. Another example is the FF program. It requires 25,000 mileage points for an award ticket. The customer only needs a oneway, but since it's 25,000 oneway or roundtrip, the customer makes-up a bogus return reservation so that they can have a ticket for use within the year. Because they know they can change parts of it without incuring any fees. The passenger does not show up for the return flight, seat goes out empty (or with NR standbys). Wouldn't it make more since to offer a oneway award ticket for 15,000. Then at a later date the customer decides they need another oneway for 15,000. Looks like they've just spent 30,000 and were not forced to book a bogus reservation depleting inventory.
As long as the airlines advertise the $49 ticket, everyone loses. The allocation of $49.00 tickets is so scarce that the customer and/or the reservations agents can end up spending hours searching for these elusive sale fares. Usually the only thing that happens is you've got a very ticked off customer, and a lot of wasted agent time. Where an agent could be actually selling real tickets at fare prices. The upside is the marketing team patting themselves on the back and being able to report that the call volumn had increased significantly on that sale day. They don't mention revenue increases for that day very much though.

 

[Art at ISP]

The first thing I would say in a rational price structure is to consider what the costs are. While it is possible to run some loss leaders, they should not make up the percentage of seats they do today. If a trip costs $55.00 (550 miles at 10 cents a seat mile) then you should have maybe 5 tiers based on purchase and restrictions...

One tier perhaps as a loss leader ($49) for 14 day advance with total restrictions

Next tier perhaps ($79) with 7 day advance and similar restrictions

Mid tier perhaps ($99) with 3 day or no advance purchase and perhaps non refundable but changeable.

Unrestricted Coach ($139) with no restrictions

Paid First Class ($169) with no restrictions

This is just an example, and could be adjusted based on the true economics, but by compressing the fare range and making sure that 80% of your sold seats are profitable, I sincerely believe over time your average fares will go up, as will your load factors. More people who would not travel this trip for $500 or more might if the fares were capped at $200 or less...for a short trip it might swing the person who is thinking of driving vs. flying.

I do not pretend to have all the answers, but the concept of business is to make a profit......

I agree that this example is very simplified, but if used as a basis I think it could work.

Even DL's simplifares aren't perfect, but from speaking to colleagues and fellow travelers, it is resulting in increased business for DL...

Just food for thought folks......

My best to you all.....

 

[a320av8r]

Art,
That's how it's done.

 

[mweiss]

Art,

You're on the right track, but I think you're missing the motivations behind it.

In today's market, with the clearly bimodal nature of the demand curve, an airline that does a better job of preventing modal bleedover from business to leisure will, in general, generate more revenue. The fundamentals that you propose do a good job moving in that direction.

At the same time, an airline that manages to keep the modal ratio more heavily weighted toward business will generate more revenue. This happens by drawing business travelers away from other carriers.

The two approaches often work against each other.

It is important, then, not to lose sight of the method of achieving the goal. That is, the goal is more revenue, and the method is finding an appropriate balance between the two approaches.

 

[USFlyer]

Art's structure would work fine if all US did was serve pt-2-pt markets. Throwing in connections, pricing competition and the like makes the analysis exponentially more complex.

 

[FM2436]

Hasn't one of the greatest problems with pricing been the result of the priceline.coms and orbits.coms. If I recall correctly, when a customer clicks on those Internet airline ticket purchasing companies and types in a specific route, priceline will display the fares beginning from lowest cost then continuing upward. The battle to be the first airline fare displayed has rhas also continued greatly to the airlines slashing their ticket prices.

 

[tadjr]

I've been working the counter the past few weeks and have had the chance to check on some fares (US/DL/WN) in various markets just to see what exactly is being offered. We are constantly being told the high fare business traffic is not there. My question then is why are we even offering some of the fares we have when NO ONE is supposedly using them and those walk ups we could be getting are not going to pay what we are asking. Case in point. We had someone miss a NW flight to MSP and they came asking about a walkup. Over $800 for a one way ticket. Meanwhile, about $150 for a roundtrip ticket.
We have people missing NK to ACY and come over to get to PHL. When we advise walkup GoFare of $139 they whip out the card and think nothing of it. Same thing with a guy going to IAD who missed DH. $135 or so GoFare to DC and bam theres the cash. I'm not saying that the GoFares in every market should be that cheap, but we were wide open and these were the bottom line offered. I have not sold an $800 ticket in months or years, yet I've seen many people walk away that would have gladly handed over money with a more reasonable fare.
MHT is another market that is over $600 one way, yet we offer $110 roundtrip. (WN roundtrip is $238!). We are over $120 cheaper RT than WN, yet they probably get all the walkup traffic with their $99-139 one way walkups because no one is going to buy the $600 ticket.
I would love to see somewhere just how many people actually purchase the Y ticket anymore. In quite a few markets we dont even offer a discounted coach ticket ( B fare) anymore. Its roundtrip cheap, Y and F. Thats it. To me, that is not even attempting to get butts in the seat last minute and money we are losing to WN/FL, etc on a daily basis.

 

[mweiss]

Throwing in connections, pricing competition and the like makes the analysis exponentially more complex.

[post="247815"][/post]​

Connections only increase complexity insofar as it becomes relatively trivial to shift inventory among connecting markets. Competition is one of the elements that feeds into the business mode weighting.

 

[USFlyer]

There are still a lot of last minute business travelers out there who will pay whatever they need to pay when they need to travel. This is the "revenue left on the table" everyone talks about when discussing rationalizing the fares. Lately, I've paid $900 for a last minute ticket on NW I would have paid $1800 for due to the nature of the trip, so NW left $900 on the table. Also, almost every business traveler I encounter must book through a corporate travel office (which do not have CRS availability into WN's prices), so I wouldn't expect many business tickets to be issued directly by airlines.

 

[BoeingBoy]

There are still a lot of last minute business travelers out there who will pay whatever they need to pay when they need to travel. This is the "revenue left on the table" everyone talks about when discussing rationalizing the fares.

[post="247823"][/post]​

I feel pretty safe saying that I doubt anyone walks up to the ticket counter or calls res and says "I'll pay $X to get from A to B, do you have a ticket that expensive?" No one except the customer knows how much they would have paid, only how much they did pay.

So it becomes a balancing act - how much do you "leave on the table" by not charging enough compared to how much you "leave on the table" by charging too much. WN and the like seem to do OK charging reasonable fares, even though I'm sure that they leave some money on the table occasionally by not charging more.

Jim