Deregulation of the aviation industry in the 70’s introduced fierce competition between airlines and gave them much more flexibility in the creation, valuation and pricing of their products.
After deregulation, legacy airlines introduced multiple “fare-products” in order to segment their market.
This allowed them to match low competitor fares whilst trying to maintain a high yield market.
Each fare-product was defined by various rules and restrictions besides the price, but over time, these fare restrictions became so complex that it was beyond the comprehension of most travellers.
Along with complex pricing structures came the science of “Revenue Management”, which helped airlines better manage seat inventory to maximise overall revenue.
Inventory controls were based on closing/opening fares, as dictated by elaborate decision support systems.
The proliferation of low cost carriers (LCCs) took advantage of this complex pricing practice and introduced uncomplicated fare structures, which not only simplified (eliminated, in some cases) the fare restrictions, but also introduced lower fares with tighter fare-ranges for the market.
While low cost carriers have targeted mainly the price-sensitive market segment, it is a continuous exercise for all airlines to match their product price to the different market segments they might serve.
But how can airlines that compete with LCCs balance low yield demand with the ability to price higher for certain market segments?
We’ll explore that question and more in the next installment of this blog post.
For now – leave a comment below and let us know what you think.