Topics: Cost, Airline, Price Pages: 5 (1371 words) Published: March 24, 2013
  Profits  Sky  High  within  the  Flying  Industry     Executive  summary    The  purpose  of  my  brief  report  is  to  analyse  the  environment  surrounding  the  Airline   Industry  in  New  Zealand.  It  will  concentrate  on  the  competitiveness  within  the  airline   industry;  the  agreements  airlines  have  made  to  increase  revenue  as  much  as  possible  and  the   major  costs  within  the  industry.  It  will  deliver  information  about  how  the  airline  industry   makes  profits  even  though  there  are  certain  threats  that  influence  the  profits.     Introduction   This  report  will  discuss  the  airline  industry  in  New  Zealand,  with  the  main  airlines   dominating  the  market,  which  are  Air  New  Zealand  and  Qantas.  The  report  will  provide  the   main  issues  about  other  low  carrier  airlines  entering  the  industry  affecting  the  main  airlines   profits,  which  led  to  the  agreement  between  Air  New  Zealand  and  Qantas  to  still  achieve   those  profits.  Also  another  factor  is  fuel  prices,  which  is  a  major  cost  for  airlines  especially   with  the  prices  fluctuating.  These  three  essentials  will  affect  the  industry  environment   causing  some  variation  in  the  industry  and  the  way  it  works.   Discussion   Competitiveness  of  the  Airline  Industry   The  regional  airline  industry  reveals  trans-­‐‑Tasman  flights  as  a  densely  competitive  sector   given  the  size  of  the  Australasian  markets.  The  reason  is  because  in  1996  an  agreement   called  ‘single  aviation  market’  was  established  to  have  freedom  to  travel  between  Australia   and  New  Zealand  with  no  constraints  opening  the  market,  which  is  known  as  Trans  Tasman   (Vowles  &  Tierney,  2007,  p.348).    The  main  two  airlines  that  dominate  the  Trans-­‐‑Tasman  are   Air  New  Zealand  and  Qantas,  which  have  dense  rivalry  between  them  with  Air  New   Zealand  having  52%  and  Qantas  39%  of  the  market  (Hill,  Jones,  Galvin,  Haider,  2007).     Further  over  the  years  fifth  freedom  international  mainly  Emirates  and  cost  carriers  such  as  

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Pacific  Blue  entered  the  Trans-­‐‑Tasman  market  making  it  “one  of  the  most  highly  competitive   air  transport  markets  in  the  world”  (Vowles  &  Tierney,  2007,  p.348).       There  is  noticeable  categorisation  between  Traditional  and  Low  Cost  Airlines  in  terms  of   pricing  strategy.  Taking  into  account  that  there  is  considerable  competition  between  the   airlines,  consumers  ought  to  have  the  luxury  of  price  flexibility.  However,  the  market  prices   for  flights  do  not  necessarily  indicate  the  assumed  theoretical  pricing.  In  fact,  there  are  only   2  clusters  of  prices  in  airline  tickets;  Traditional  airline  prices  and  Low  Cost  airline  prices.   The  cluster  exits  due  to  Price  Discrimination,  which  means  “charging  different  prices  to   different  consumers,  where  the  price  difference  cannot  be  fully  explained  by  differences  in   cost”  (Stavin,  1996,  p.3).  Air  New  Zealand  and  Qantas  get  away  with  Price  Discrimination   because  they  have  the  market  power  to  charge  different  prices  (Stavin,  1996).     Airlines  get  away  with  charging  different  prices  for  the  same  service  they  provide;  they  can   do  this  because  supplying  additional  seats  cost  the  airlines  very  little,  they  try  to  extract  the   maximum  willingness  to  pay  from  each  customer  and  reinforced  by  Stavin  who  stated  that   “firms  need  to  be  able  to  separate  consumer  groups  with  different  Demand  elasticity’s”   (Stavin,  1996,  p.3).  Airlines  also  get  away  with  charging  high  prices  on  more  competitive   routes  (Stavin,...

References: Hazledine,  T.  (2008).  Competition  and  Competition  Policy  in  the  Trans-­‐‑Tasman  Air  Travel  Market       Retrieved  from­‐‑db12-­‐‑4263-­‐‑     a093-­‐‑3e9bcde3f6b1&UserID=57fbe13c-­‐‑1e0d-­‐‑417e-­‐‑8268-­‐‑8650da2cafbc     Hill,  H.W.L.,  Jones,  G.R.,  Galvin,  P.,  &  Haider,  A.  (2007).    Strategic  management  an  integrated         approach.  Queensland:  John  Wiley  and  Sons  Australia,  Ltd.     Loudin,  G.F.  (2004,  December)  Financial  Risk  Exposures  in  the  Airline  Industry:  Evidence  from       Retrieved  from­‐‑db12-­‐‑4263-­‐‑     a093-­‐‑3e9bcde3f6b1&UserID=57fbe13c-­‐‑1e0d-­‐‑417e-­‐‑8268-­‐‑8650da2cafbc     Stavin,  J  (1996).  Price  Discrimination  in  the  Airline  Market:  The  Effect  of  Market       Concentratiohttp.     Vowles,  T.M.,  &  Tierney,  S.  (2007,  December).  The  geographic  impact  of  ‘open  skies’  policies       onTrans-­‐‑Tasman  air  passenger  service.  Retrieved  from­‐‑41ea-­‐‑4618-­‐‑bbad-­‐‑     54e0ef30ab37&UserID=57fbe13c-­‐‑1e0d-­‐‑417e-­‐‑8268-­‐‑8650da2cafbc
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