Last year EyeforTravel’s Ritesh Gupta was trying to book an airfare from Los Angeles (LA) to Las Vegas. After checking a range of options, including his chosen airline’s own website, he decided to book tickets using kayak.com which had the best fares two days in advance of the flight. He asks Henrik Jakobsen, pricing manager at Scandinavian Airlines about the dynamic nature of pricing.

In today’s hyper-competitive marketplace, airlines are certainly not alone in changing prices frequently. However, airlines are expensive, cash-intensive businesses with low margins that need to constantly check for sources of revenue leakage - so prices will change frequently as airlines look to plug those leaks.  Fares change as a result of market forces such as competitive pricing, shifts in scheduled inventory, fuel costs and rising or falling demand. “Most airlines each have a variety of fare levels and fare types, so depending on customer needs or behaviour and total demand of the specific flight or date in question, your price could well differ from departure date to departure date,” says Jakobsen, pricing manager at Scandinavian Airlines. The most significant change in airline pricing over the last decade is the decision to unbundle services formerly included in the ticket price, most notably baggage and meal services and this is a trend that is here to stay.

EFT: What new trends have you witnessed in airline pricing?

HJ: Not much new as such, but a continued trend of unbundling pricing. Other than that, the markets have been influenced a lot by consolidation (strategic alliances such as joint ventures, mergersand so on) as well as severe price wars due to softened demands and over-capacity in this industry.

EFT: Can we compare airline pricing with how hotel companies approach pricing?

HJ: Airline and hotel pricing would have a lot in common. Both industries operate in highly competitive markets, often suffering from over-capacity, both share same/similar types of customer segments and they both have products/services to price with comparable, and relatively short, life-cycles.

EFT: What makes airline pricing challenging? Can you list these factors?

HJ: Airline pricing is very challenging and can be characterised and influenced, by a number of factors … some of which are:

·          The highly competitive nature of the industry means many airlines have highly developed and intelligent revenue management systems/ pricing models.

·          There is fierce competition on international markets that have been liberalised/deregulated for many years, leading to many price initiatives and adjustments (mostly downwards these years).

·          It is a very volatile business, with many external and global factors influencing (threatening) revenues/ profits, and thereby influencing the price-setting

EFT: What do you recommend when it comes to optimising airline pricing going forward considering that consumers are much more likely to compare prices online?

HJ: I recommend a pricing policy/ strategy that encourages openness, simplicity and transparency at all times. Focus on optimising through clearly defined customer segments rather than through distribution channels.

EFT: What do you make of new ticket types or classifications based on card charges, baggage allowance, seat selection, lounge access and so on?

HJ: The unbundling pricing trend continues and is here to stay I believe. For many customer segments a lot of the ‘added features’ are quite relevant to unbundle, but some are just a bit too farfetched - extra charge for food on a long-haul flight, when all passengers have to eat during 8+ hours, but admittedly there is good potential in an ancillary revenue business model these years.

EFT: How should airline go about offering incentives as a tool for attracting new customers or retaining existing ones?

HJ: It is very complex, and there is not one simple recipe for this. These days most airlines would be looking at bringing down their ‘cost-of-sale’, so perhaps more focus on creating long-term relations and loyalty and there is less room on spending on short-term incentives.