Airlines scramble to find new revenue streams
The days of the all in one ticket price - a simple means of flying from A to B are looking like a distant memory. The global aviation industry is set to lose up to $30bn this year and with average ticket prices continuing to decline and capacity utilization falling, the airlines are falling over themselves to find extra ways of getting passengers to part with their cash.
New wheezes include asking passengers to pay for the right to choose a seat, together with the growth of charges for baggage check-in and meals on board. If you are willing to pay in advance, travel light, book online and check-in online in a seat of the airline’s choice, you can still find very cheap flights. But the extras amount to a premium on choice and flexibility - I guess this is an example of the hurdle model of price discrimination - BA has launched a second-bag check-in fee on some of its flights and a reservation fee for passengers wanting to book particular seats more than 24 hours in advance of flight time. Day by day it is starting to resemble a budget airline in tactic as well as consumer goodwill. I booked a return flight to Hong Kong today with Cathay Pacific - no tedious optional extras - what a refreshing change!
This BBC video is good on the new a la carter revenue policies of airlines.
Revision - Price Discrimination (presentation)
Here is a revision presentation on price discrimination.
Revision: Moving Away from Profit Maximisation
The traditional theory of the firm which assumes that businesses possess sufficient information, market power and motivation to set prices or their products that maximise profits is outdated. A2 students need to understand the circumstances in which a firm / business will not seek to maximise profits (where MR=MC) - this revision note covers this issue:
read more...»Positive Price Discrimination at South Africa 2010
As you can see from several entries on the IB Economics Blog today, Africa is suffering a significant reduction in growth in the global slowdown. The IMF summit taking place in Tanzania this week is looking for ways to combat this. However, demand for some scarce goods remains very inelastic, and it seems likely that even in the midst of the gloom tickets for the football World Cup in South Africa in June-July 2010 will be over-subscribed. Ticket prices for sports events offer opportunities for price discrimination and maximum price setting, and the ticketing process for the World Cup in South Africa takes advantage of this on behalf of local people rather than the supplier, and seeks to ensure that some consumer surplus is available to them. This could be an important factor for a country with almost 22% unemployment, two quarters of negative GDP growth, GPD per capita of $10,400 in 2008 but a GINI index of 65 (2005) indicating significant inequality in the distribution of income (compared with 38 in the EU).
read more...»Revision: Business Pricing Strategies
This two page revision note is designed for A2 economists and considers some of the factors that can influence the pricing behaviour of businesses - notably a move away from maximising behaviour when setting prices and the impact of increased market contestability and technological change.
read more...»
King sized rates for UK hotels
Why are British hotels so expensive? And how are British hoteliers using price discrimination to charge different nationalities different prices for the same room? These are other questions are explored in this excellent Independent “Big Question” feature from last week. The online article contains a superb graphic that teachers might want to use in a worksheet. There is a lot of microeconomics in the article by Martin Hickman, consumer affairs correspondent.
“The UK has the most expensive hotels in Europe, according to a new report. Staying a night here cost an average of £106 in 2007, up 12 per cent on the previous year. So why are Britishhotels so expensive? Three factors – tax, costs and supply and demand – according to the British Hospitality Association, the hotel industry’s body.”
The article can be accessed here
The Times reports today that “The leisure group Whitbread has been holding secret talks to merge its Premier Inn budget-hotel business with the rival Travelodge chain in a move that would create a £3 billion hospitality giant.”
All aboard - can Grand Central stay on the rails?
Getting a new rail service off the ground is never easy. New rolling stock has to be commissioned and older carriages renovated; drivers have to be trained and other essential staff recruited. Marketing fresh timetables to customers takes time and travellers have to be reassured that the services will run to time and safely. Grand Central has battled industry indifferences and some outright hostility (from GNER the former holder of the East coast franchise) to launch a service providing a direct route from Sunderland along the Durham coast to London King’s Cross is a great example of a business that has struggled to get over the start line. The first trains pulled out of Sunderland station in December 2007 more than twelve months behind schedule mainly because of long delays in new rolling stock being delivered and then tested. Even now only a partial service is available. The company’s marketing slogan is “the train you have been waiting for” - somewhat ironic given the difficulties the business has faced.
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