What's The Better Way To Price The Product?

Jim, I agree. And, to flip the coin on my analysis, leaving revenue on the table for one itinerary leaves money available for another itinerary that might not otherwise have been booked. So, one $1800 ticket that I paid $900 for means I can take another $900 or so trip, which actually has happened many times in my case. I would submit, however, this generally applies to folks who travel regularly for business; those doing "one off" business trips won't typically spend whatever is left on the table.
 
USFlyer,

I'd be the first to admit that I don't have the data, of if I had it wouldn't know where to start formulating a fare schedule. It just seems than WN, B6, and even DL's "Simplifares" are loosely milage based with the bottom normal fares at about CASM and the top fares at about double CASM.

It's just hard for me to conceive that something like that couldn't work here, assuming proper yield management.

Jim

[edit - replaced "cost" with "CASM" in the above for better clarity - Jim]
 
the internet is taking care of all pricing issues... the individual consumer has the power to know the cheapest fare. The only place an airline still has pricing control is the routes they monopolize. e.g. PIT to PHL ( not for long though)...
 
kiloromeo,

I agree with you, as long as we stipulate that we're talking about the bottom end of the fare structure. For those wanting the lowest fare, transparancy of pricing has made the LCC's the price setters.

However, the individual carriers still have complete control over their fare structure and inventory - what fares are offered that are higher than the lowest and how many seats are offered at the lowest fare.

Individual carriers also have a lot of control over the "perceived" value of their fares - at least those fares above the lowest. For example, DL apparently thinks it can offer enough "perceived" value to those willing to spend more than the minimum to justify a higher top fare than WN - $499 one way domestically in coach vs $299.

Jim
 
USFlyer said:
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.
[post="247823"][/post]​
And if NW is the only airline serving the route, you're right. As an oversimplifying statement, this is what drove the pricing model throughout much of the 90s.

Now, let's move to the next step. What if NW and DL (for example) both serve the route, with NW charging $1800 and DL charging $900. DL gets $900, and NW gets $0. How much did NW leave on the table by charging $1800?

This is a valuable discussion, and I'll be happy to lead you down this path. It leads to an understanding of why there has been so much erosion of pricing power at the legacies.
 
enilria said:
I tend to think the problem is not the pricing, but the pricing is merely a symptom of too much capacity.
As I've said elsewhere of late, "too much capacity" and "too high unit costs" are synonymous market conditions.

resqicunurse said:
I'm curious as to why the rules can't be really simple..
The simplest answer is that the demand curve is bimodal. In order to maximize revenue, the seller must somehow differentiate pricing between the two modes such that the high-price mode bleeds over to the low-price mode by as small an amount as possible.

This differentiation is precisely the motivation behind the "cumbersome, complicated fares."

1. Price the route to cover the expense
Would that it were that simple. If you have a choice between a seat going empty (100% loss) or at a price that is half of cost (50% loss) which would you choose?

usairways_vote_NO said:
Collusion is already built in as fare changes are known by every airline almost instantly unfortunately it almost never works when raising fares.
[post="247630"][/post]​
Not really. The fact that the increases haven't worked is evidence that you're seeing competitive pricing, rather than collusion. They can often look similar, but they are quite different.

usairways_vote_NO said:
I do agree with you yet I don't think the over capacity necessarily means there are too many airlines.
[post="247632"][/post]​
I agree with you there. However, a reduction in the number of airlines can reduce a degree of overcapacity, depending on how it is implemented. History suggests that it is unlikely, though.

tadjr said:
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.
In many cases, it's because of contracts. There may be contracts with large corporations offering a discount percentage off of full Y. As long as you keep the full Y at the high level, you keep that company's fare (and thus your revenues) up.
 
mweiss said:
This is a valuable discussion, and I'll be happy to lead you down this path.
[post="247872"][/post]​

What!!! We can't just stumble around on our own!!!
:lol: :lol: :lol:

Jim

[On reflection, I hope you don't take this the wrong way - it's just a good-natured poke in the ribs - Jim]
 
:lol: I knew where you were going. But it's so hard to have these discussions without going into the weeds.
 
With the right kind of weeds, this could turn into a revelation - though I'd have to hang up my uniform and retire.....

Jim
 
Michael,

On a more serious note and in keeping with the thread title, I'd be interested in hearing what you'd suggest if someone asked you to design our fare structure from scratch...

Jim
 
ok, but what if 200,000 people want the 6am flt on Fri. or Sat. because their cruise ship leaves at 11am. Does not the value of flights during that time on that day increase in value, for the shear sake of supply and demand?
 
bookmdano said:
ok, but what if 200,000 people want the 6am flt on Fri. or Sat. because their cruise ship leaves at 11am. Does not the value of flights during that time on that day increase in value, for the shear sake of supply and demand?
[post="247993"][/post]​

Good point.

Much like tax reform, simplicity sounds so good until you actually look at the details - and then complexity begins to look like a good idea.
 
Tadjr,

I don't know where you got your pricing, but last Wed PM I purchased a walk up fare TPA-MHT for $208.40. I think US lest more than $200.00 on the table for that flight. The flight was TPA_PHP-MHT. If it was TPA-CLT-MHT I think the fare would be more than $600. That is just crazy.

Last Sunday In needed to go to ORD. 3PM MHT-PHL-ORD 156.00 6PM MHT-CLT-ORD $868.00; UA direct @ 5:15Pm 487.00.

I took UA because of the time. The 3PM left too early, the 6PM too much $ and arrived too late. The direct UA was just right., and for some strange reason UA upgraded me on the flight. Their pricing is just as crazy, the same flight the week before was $50.00 more, and no up grrade.

It is not just on US, but fares are crazy. Why sould the same ailine charge considerably more because of the cityu you connect through. They should be the same, execpt for the local taxes
 
If you went thru PHL you were probably booked on 2 one way GoFares TPA-PHL and PHL-MHT. Via CLT it is booked just as a thru flight TPACLTMHT since there arent GoFares TPA-CLT or CLT-MHT. This happens in a lot of markets where connections are available via PHL, but it doesnt come up in the fare quote with a display like this. Its a bargain you get after booking it and it fares out this way. The fares I was quoting come direct from the TPA-MHT fare quote display. Thats why when someone comes to the airport to book a ticket I never look at the fare quote only since that can be deceiving. I always ask them when they are traveling and BOOK IT and let the computer fare it out since this is a common occurance. The same thing happens thru DCA with the GOFares there as well.
 
Regarding the "crazy fares", another reason is because of seat inventory. The base fares in a market could be exactly the same but if one flight is sold out of W seats and another one isn't, the one with W seats will be much cheaper than the one that has only H seats left.

On the one hand, everyone screams for simplicity, yet if you simplify one of the complications of air fares, the booking class, you will see even wider discrepancies in quoted fares.

If US had 25 booking classes rather than 9 or 10, the fare differences would be much smaller when one flight sells out of a booking class. However, if you had 25 booking classes, in order to use them, you would need to publish at least 25 fares.


There is one way to have a different fare system without leaving a lot of revenue on the table, and that is to sell airline tickets the same way people sell cars and houses -- negotiate! (is that simple or more complicated?)

The example of people inquiring about a walk-up ticket to ACY or MHT because they missed their OAL flight is a perfect example of where negotiation is the only way to sell tickets without flooding the market with cheap fares. When you see that someone is clearly not willing to pay $600 one way, offer a $200 fare.

Of course, this is easier said than done, and it would require a massive change in the way ticket agents are compensated (you know, commission only), but since this is a brainstorming thread, I thought I would just throw this idea out there as something to think about.