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anshul bhardwaj

on 9 May 2014

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Pricing Strategy
Domestic Airline Industry
Anshul Bhardwaj
Vic Feldberg
Karthik Karthik
Hisaya Sobajima
Early 2000
2003 Onwards
1978: Deregulation of Airline Industry
Control shifted from government to free market based model
More routes added to under served area
Development of hub and spoke model
Lower pricing
1990's: Online Flight Aggregators
Rapid Expansion of online Travel websites like Orbitz and Priceline
Different business model:
Orbitz allowed to -choose specific flights
Priceline -"Name your price" model
Guaranteed extra revenue by selling unused inventory
Early 2000: Rise of low cost carriers
2003 Onward: A La Carte Services
Constant rise in Oil prices affected costs
Revenue model tweaked. Extra fee for
Seat Assignment
Almost everyting!
Airlines like Southwest (SWA ~aka
on Nasdaq, came to prominence
Shorter trips
Smaller airports
Point to point
Current Market Share in US Airline Market
Why we

Airline Prices:
For 10 destinations
On Feb 19
For flight on March 26
A Window into Airline Pricing
Distances between destination
Should you drive or fly?
What is the pricing strategy?
-For every extra mile price increases by 3 cents.
-Little correlation between price and distance.
-Competition results in pricing dropping closer to costs.
What sets

Cheapest Price in $
Distance in miles
Average Price in $
Distance in miles
Limiting Competition
Everyday Low Price Strategy (EDLP)
-Communicate value with consistency

Perception of Price More Important
Than Price!

-Tactic: Undercut selective routes
-Tactic: Offer more direct flights
-Tactic: Limit comparison
-Tactic: Don’t nickel and dime for
Bags Fly Free
No Change Fees
Create Advantageous Cost Structure
-Reduce gate and landing fees by flying to secondary
but still convenient airports
-Control fleet maintenance costs
-Increase capacity with takeoff and landing efficiency
-Limit expenses on low willingness to pay adjunct
features like in-cabin entertainment or snack options

Compete Strategically On Cost
-Isolate and attack weakness
-De-incentivize price wars with commitment
-Invest in brand power leaving short term profits
on the table in favor of long-term positioning
Communicate Value to Business and Leisure
Travelers Alike
-Remove restrictions on best fares

Turn Disadvantages Into Benefits

Create A Unique Loyalty Program
-Rapid Rewards!

Strengthen Affinity Marketing
-Drive website traffic and collect data
-Grow the partner pool

Let Passengers Choose Their Own Seats
-Calms fear of getting stuck with bad seats
-Improves last minute bookings
Scaling Of The Business Model
-Oder New Fuel Efficient Planes
-Explore International Opportunities…Caribbean &
-Compliment Organic Growth With Inorganic
-Merger with AirTran
Taking A Greater Leadership Role
-Initiating price increases rather than simply
embracing them
Deeply Discounting Excess Capacity
-Occasional off peak “super sales” for early bookings
-Discourage price matching
Transitioning Perceptions Away From “Low Prices” to “Unrivaled Value”
Southwest wins!

Southwest vs others

Competition among others
Types of Competition
Southwest wins!

Short to Middle distance flight
Utilize the minor airport to reduce the landing fee
Types of Competition
Southwest vs Others

Short to middle distance flight
Origin/Destination is a hub of others
Types of Competition
Competition among others

Long distance flights
Two of others are competing
Types of Competition
Full transcript