Virtually everything we read is biased. Of course, this is true in politics and the media but this is also true in the airline business where different carriers and suppliers have different perspectives and passionately endorse their way. Airline pricing, in particular, is often viewed as something that can be optimised based on sophisticated models and big data analytics.

One possible solution to the one-sided views we are often exposed to in airline ‘optimisation’ is to offer both ‘points’ and ‘counter-points’ together in the same paper. Potentially, each perspective has validity – in particular cases – and neither position works well in all situations. In fact, there are good reasons for each of a variety of alternative airline pricing strategies – depending on the market, competitive situation and the particular airline’s overall strategy. In general, no point of view is entirely right nor entirely wrong. There is always another way. What do you think?

POSITION

Maximise Ancillary fees
Sample Proponents: Ryanair, Spirit Airlines, Frontier Airlines
Ancillary fees are a customer-friendly tool for increasing total revenue. Such optional fees put choice into the customer’s hands, asking them to pay only for those services they value incrementally. Thus, they can help keep base fares low.

Charge fees for checked bags
Sample Proponents: Most airlines
Handling bags costs airlines money and customers who use the service should pay for it. Bag fees are now a major contributor to profitability.

Deploy sophisticated revenue management model
Sample proponents: United Airlines, SABRE
Using the latest RM model can add another 2-5% to your total revenue, increasing profitability significantly. The newest models optimise across markets and fare levels in a way that no team of analysts can.

Match competitor’s pricing
Sample Proponents: American Airlines
Last year, American announced that it needed to match LCC base fares despite having a clearly better product.  It argued that many of its passengers fly infrequently and select flights looking only at the base fare.

Charge Passengers a (GDS) booking fee
Proponent: Lufthansa
The cost to passengers should be the same in all channels. This simplifies bookings for customers and exploits the unique value of third party channels. The much higher cost of distribution through third party sites needs to be borne by customers who use those channels.

COUNTER-POSITION

Limit ancillary fees
Sample Proponents: Southwest Airlines, American Airlines
Customers value a bundling of services that fulfill expectations and that are easy to understand and purchase.  A proliferation of fees reduces transparency, adds friction to the purchase process, and is anti-customer.

Checked bags are free
Sample Proponent: Southwest Airlines
Bag fees are disliked by passengers.  By not following the industry, an airline can build a customer-friendly brand and gain market share, more than making up for lost bag fees.

Adopt simpler pricing model
Sample Proponents: Frontier Airlines, easyjet, RMS
Highly sophisticated models can go beyond the ability of analysts to manage effectively. Simpler, easier-to-understand models lend themselves better to appropriate human intervention.  

Do not match competitor’s pricing
Sample Proponents: Most legacy carriers
Most legacy carriers rely on their sophisticated RM models to set prices. They raise fares relative to the competition if model identifies incremental high fare demand for their flights from other markets or other customer segments.

Do not charge passengers a booking fee
Proponents: Most airlines
The cost to passengers should be the same in all channels. This simplifies bookings for customers and exploits the unique value of third party channels.