Budget Airlines Pricing Strategies

Topics: Low-cost carrier, Airline, Low-cost airlines Pages: 27 (2958 words) Published: December 27, 2013
I. Executive summary
Budget airline industry
Singaporean airlines industry grew by 10.3% in 2007 to reach a value of S$6.5 billion, growing by more than 10% up to now. Noticeably, low-cost carriers have been the industry’s success story over the past decade. It has won huge number of passengers, stealing full-service market share and forcing full-service airline such as SIA to run its own low-cost options such as Scoot and Tiger airways. Expansion plans for budget airlines has focused on offering long-haul for low fare, opening a new frontier in the fiercely competitive aviation market.

Asia’s growing middle class has increased a significant demand in more and cheaper flights. The number of yearly passengers traveling on budget airlines passed 10 million for the first time in 2011. These passengers are mainly economical travelers in their twenties and thirties with extremely high price-consciousness. Competition

Air-Asia, Jetstar Asia, Tiger Airlines, Lion-air and youngest entrant Scoot are the key players in budget airline industry in Singapore.
Airasia has been the most successful budget airline in Asia with profit doubling in year ended 2012 due to the increase in number of seats sold and higher average airfare. This implies that Airasia well managed to price its product to optimally accommodate its different customers at different time.

II. Price to benefit:
Price-Benefit Map

We shall discuss AirAsia’s pricing strategy using a round-trip flight from Singapore to Bangkok from 5-8 March as our test case. As leisure travellers, our preferred flights would be those with flight times which allow us to maximize our time spent at the destination. In this case, the Singapore-Bangkok flight would be in the early morning and the Bangkok-Singapore flight in the late evening. As all budget carriers offer similar add-on benefits with similar pricing for these addons as well, price-sensitive budget travellers would be most likely to go for the cheapest carrier. This means that the zone of indifference would be very narrow as a small change in price would greatly affect a budget traveller’s perception of value. In addition, due to their similar add-on offerings, we resorted to differentiating each budget carrier based on these 3 factors: the number of flights per day, the number of destinations they offered and the variety of meals served onboard. We ranked these benefits and made an overall assessment of their value against price to come up with the price-benefits map.

Thinking from a leisure traveller’s perspective, time would be their most valued attribute as they don’t want to wake up too early for check-in as this would make them fatigued and they would not want to leave in the late afternoon as they will waste one day of accommodation fees if they reach the destination too late. In addition, fares differ according to the time of the day and leisure travellers are more price-sensitive than corporate travellers who are flying at the company’s expense. Therefore, what matters is the flexibility in choosing from a variety of flights during departure and arrival so that the may plan our trip to maximize utility. The next most important attribute would be the number of destinations offered. For leisure travellers who consist of those planning short getaways and backpackers who want to explore more obscure destinations, they would be more likely to fly with a budget carrier which flies to more destinations. Lastly, another important attribute would be the

variety of in-flight meals. Though some budget travellers would wait till they reach their destinations to have their meals, hunger is sometimes out of their control. Therefore, a good meal on the way there is crucial to one’s in-flight experience, and having a wide variety of meals might positively affect this experience. Scoot




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