DISCRIMINATION BY AIRLINES.

Plane

Price discrimination is charging different prices from different set of consumers for same goods. For airline an company the seats in a plane is the inventory. The airline companies are one of the biggest discriminators based on price. The companies use different criteria for this sort of discrimination such as:

1. Based on quantity bought.

2. Based on time of use.

3. Based on age profile.

4. Based on when is it bought.

The airline companies charge different prices from customers who are different in age, the companies may also offer discounts when tickets are bought in certain numbers this type of discrimination seems to be normal. On the other hand companies may also ask for different prices based on when the ticket is bought also the time of use of the service. The principle behind this discrimination is that the companies are using different price elasticities. but then seats are the same they are not different. The companies may offer lower priced tickets for unsocial  hours, companies may also choose to charge for extras. Another type of price discrimination can be seen when people are charged differently on same routs but with different ending and starting points. For example an airline company may charge double the price for London- Melbourne return flight in comparison to Melbourne-London return flight. One may argue that the seats are the same but trhe service is different. Here company uses third degree of price discrimination.

Type of discrimination:

  • First degree: Charging the highest price which an individual consumer is willing to buy.
  • Second degree: charging prices based on quantity consumed.
  • Third degree: charging different prices from different groups of people.
  • Forth degree: price paid is same but, firm may incur different costs.

This sort of price discrimination is quiet prevalent in airline industry and almost all companies use it for their benefits arguing that they make use of the different price elasticities. The companies may also try to take advantage of the price sensitivity of different type of consumers.

WHAT DO YOU THINK IS IT FAIR ON THE PART OF THE AIRLINES TO FOLLOW PRICE DISCRIMINATION?

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12 thoughts on “DISCRIMINATION BY AIRLINES.

  1. Nice Blog…
    No, its not fair…
    There is no rigid standard, however in the event that you purchase a ticket a while ahead of time it has a tendency to be less expensive. In the event that interest for the specific flight is high, then the air transport begins setting up the cost of that flight. It implies that the remaining tickets might be purchased by individuals willing to pay a higher value (inelastic interest). On the off chance that a specific flight is not offering exceptionally well, the aerial shuttle will do the inverse and decrease cost. This lower cost pulls in more individuals why should delicate costs and guarantees that the flight will top off.

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    • The companies argue that they use elasticity of demand as they want to fill up as many seats as possible to reach a break-even point by offering lower prices and afer that they charge higher price for more profits.

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  2. Great article on price discrimination and interesting airline perspective. Airline seats are perishable, the moment the plane departs, the inventory disappears. The price of the seats is driven by what a passenger is willing to pay and if they are not willing to pay, they go elsewhere.

    Segmentation is the basis of seat price setting. Leisure, corporate, family, student, full service v low cost airlines, loyalty; many ways to price a product which is essentially identical.

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    • yes, i agree with you the stock for airlines companies is perishable that is the reason they charge lower prices in the beginning for achieving their braek even point.

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  3. Definately not fair, however, something I’ve always taught my kids – Life’s not fair, get used to it!.
    I would have thought it would be cheaper closer to the date as you are trying to sell seats. No use flying with empty seats as that is costing the airline money. Then again, the airline can cancel the flight & rebook you on another one a day later instead, and not really make an effort to notify you in time. Although if you have to fly on a particular day for a particular reason, you’ll have to pay whatever they’re charging as you don’t have the luxury of choice.

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    • The companies charge lower prices in the beginning as they want to fill up as many seats as possible to reach a break-even point by offering lower prices and after that they charge higher price for more profits.

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  4. They are in a service industry, core business is the transportation the experience given with that transportation is the value added service performed, prices are charged for enhanced customer service or facilities provided such as providing email service to business class, choice of meals, it is economically not feasible to fly a plane below a certain pay load therefore they attract customers early by giving discount to fill in their seats fast, after passing their cut-off load or some set point they start to charge a premium or margin, I think the price discrimination is fair for airlines.

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    • yes, i totally agree with you i feel this price discrimination is fair by airlines as they have to cover their costs in the beginning by offering lower price to attract price sensitive customers and after that they start charging higher prices.

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  5. I agree with Davin306 that airlines must sustain and maximise (within legal compliance) profitability. I do not think this is price discrimination but it is segmentation of the market and setting pricing strategies to attract various segments. Travellers that buy their tickets early allow airlines to secure those sales, and comparable to bank interest rates, it would make perfect sense to lower the prices to offset the interest, not to mention the security of the seats being sold earlier which lowers sales force costs. Anyone can choose to book their ticket 6 months in advance to receive a better deal, sit in the front or the back. And in terms of price differences ie Melbourne-Saigon versus Saigon to Melbourne can be due to local taxes and fuel costs but mainly because pricing is determined by the time and demand of the flight which vary.

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  6. Great blog, really interesting to learn more about the pricing strategy of the airlines. I think is fair practice for the airlines to have a floating price depending on different variables. It is not too dissimilar to the real estate maker, where the price of a house might fluctuate 10s of thousands of dollars depending on when it is sold and who is also interested in purchasing it on a given day. We don’t complain about this in the real estate market, so why do we complain about the similar pricing strategy when it is an airline.

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    • very true, the real estate also follows same practice. so in a way such price discrimination is fair as they use demand and supply factors.

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