The impact of low cost carrier on the future
of pricing and revenue management
Received (in revised form): 12th November 2011
Qatar Airways, Qatar Airways Tower 2, Doha, State of Qatar
Dieter Westermann holds the position of Senior Vice President RM Strategy and Solutions at Qatar Airways, the national carrier of the State of Qatar. He has more than 20 years of experience in revenue management business processes and systems, as well as in the area of pricing, reservations and distribution. During his career in the airline business, he worked for multiple carriers including Lufthansa and Swissair. He also got insight into the perspective of system providers, while he worked at Lufthansa Systems in the position of Director Portfolio Management and Innovations.
Correspondence: Dieter Westermann, Qatar Airways, Qatar Airways Tower 2, Doha, State of Qatar
ABSTRACT The Low Cost Carrier (LCC) business model has changed the airline industry significantly over the previous decade. However, the traditional airlines responded to the newcomers and times are more challenging for the LCCs today. Limited growth potential leads to a convergence of the two business models, which requires new forecasting and optimization methods to be developed over the coming years. Journal of Revenue and Pricing Management (2012) 11, 481–484. doi:10.1057/rpm.2011.47; published online 23 December 2011
Keywords: low cost carrier; traditional airlines; fare fences; fare rules and restriction; auxiliary revenue; fare families
LOW COST CARRIER (LCC) – A
The LCC model is certainly a successful business model in the airline industry. Although there have been a few LCCs already during the
1980s and 1990s, since the beginning of the last
decade the number of LCC has increased
drastically. Originally started in the United
States followed by Europe, today the number
of airlines operating the low cost business
model is growing constantly and rapidly in all
regions of the world. A few of them developed
to the size of the large traditional airlines.
Considering the number of passengers carried
airlines like Ryanair or Easyjet are under the
largest 10 airlines in the world.
The success of the LCC business model was
supported by the fact that the relationship between the consumer and the traditional airlines was impacted by lack of trust. Pricing structures
that were difficult to understand by the consumer
combined with a long list of complicated fare
rules resulted in the perception that all this was
only designed for the purpose of confusing the
consumer and taking advantage of them by
charging too high prices.
LCC realized this, simplified their fare structures and offered low fares at the same time. They removed most of the rules, introduced one-way
fares combined with easy-to-understand step
& 2012 Macmillan Publishers Ltd. 1476-6930 Journal of Revenue and Pricing Management www.palgrave-journals.com/rpm/
Vol. 11, 4, 481–484
pricing and communicated those aspects aggressively, but in a very effective way. As a consequence, they were able to establish the image of the airlines always offering the lowest fare.
In addition to low fares and simplified
pricing concepts, they introduced unbundling
and started offering optional service components for an additional charge. This has again been well marketed under the context of fair
pricing. ‘The choice is yours’ has been the
message towards the consumer emphasizing
that they only have to purchase a service and
pay for it when it fits their needs. Low fares,
simple price models and the option of having
the choice created an image of being fair. This
established trust, which turned into repetitive
business, and therefore generated the success of
the LCC business model that has been observed
over the years.
A LEARNING PROCESS – THE
FULL SERVICE CARRIER CHAIN
In the beginning,...
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