Airlines are now in the commodity business as the public demands low-priced transportation. It has moved from elite to a common form of transportation. Today the travelers are well informed about how to surf the web for bargains through numerous sites such as Sidestep, Orbitz, Expedia, Travelocity, Hotwire, and Cheap tickets. As a commodity, airlines cannot increase prices to increase profits, so they are only left with the choice to cut operating costs such as labor costs. Amid the competition, airlines have refocused their attention on the customers.
The industry still heavily targets frequent flyers, as members can earn miles through traveling, car rentals, hotels, and credit card use. Since deregulation, airlines have had the same pricing opportunity as companies in other industries had and airline pricing thus, made pricing very complex for the normal customer. The fares and freight rates were set in accordance to the response from both the customer demand and the prices of competitors. Consequently, fares change much more frequently than they used to in the past and passengers sitting in the same section on the same flight often pay different prices for the same seats.
The setting of fares is difficult to understand for some travelers but makes sense to the airlines keeping in mind that seat on a particular flight is of different value to different people. For the airlines, the chief objective in setting fares is to maximize the revenue from each flight, by offering the right mix of full-fare tickets and various discounted tickets. Discounting which is very low against weak demand for the flight and the plane leaving the ground with a large number of empty seats result in loss of revenue generating opportunities for that particular airline.
While too much discounts can sell out a flight far in advance and prevent the airline from booking last minute passengers who are highly likely to be willing to pay higher fares which is also another revenue opportunity lost. Deregulation of the airline industry has largely been a success with better service and better pricing for the traveling public. The benefits of deregulation have not yet been fully realized but in an ideal world, deregulation should result in an open and competitive environment in which low-cost and new entrant airlines can compete on a level playing field with the larger carriers.
Nevertheless, with major carriers controlling entrances at key points, a significant barrier to entry is formed that reduces competition and the number of new entrants into a market. With the number of airline mergers over the past years, larger carriers ended up with the majority of leased gates at certain airports, which became the carrier’s hubs. In some cases, these gates were not being fully utilized, but were withheld from competitive carriers trying to obtain space to run their operations.
However, with the financial troubles currently being experienced by larger carriers, gates at larger airports are freeing up and the smaller, low-cost providers are moving in. Recommendations The airline industry has continued on the path towards globalization and consolidation, very much similar to other industries. The airline industry has achieved this by the mergers and cooperation among the airlines and breaking all barriers to restrict any airline from operating in a particular region.
It has been predicted that by 2010 there will be an immense growth in the number of passengers and due to which the future will hold many challenges for the European airlines. Prosperous and achieving airlines will be only those which continue to undertake their costs and advance their products, in that way securing a strong presence in the world aviation markets. Thus, European Airlines should consider taking measures which will revolutionize its existence in the market: adoption of new trends, creating a blue-ocean strategy and partnering with other airlines to provide quality service.
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