Pricing strategy in aviation
Pricing is a major point of concern for many airlines since the business consumes a huge amount of capital expenditure (CAPEX) and operational expenditure (OPEX). The aviation market has always witnessed competitive pricing by offering unique products with value added services such as In-Flight connectivity, In-Flight meal services, baggage allowance and seat preference services
A major trend attributing to the growth in the passenger aircraft market is the growth of premium economy classes. This segment mainly caters to the economy class flyers having long-haul flights and are unable to afford the business class fare. This mid-range segment is boosting air travel passenger count and also providing additional revenue opportunity for the airline companies.
In 2016, Iberia airlines has announced premium economy class travel across most of their long-haul fleet, that comprises mainly Iberia’s A330-300, A340-600, and A350 aircraft model type. The company has set up their premium economy class in a 2-3-2 configuration, by reducing a seat and evenly distributing space with the 7 seats instead of the eight seat per row economy class.
Following suite, in March, 2019 United Airlines began offering premium economy cabin on a few long-haul routes. The company aims to offer premium economy cabin on the majority of its 186 widebody aircraft by the end of 2020. Major Airline operators such as Emirates are also planning to implement premium economy, foreseeing a huge revenue opportunity associated with it.
Another major trend witnessed in the market is growing number of low-cost carriers and declining gap between low-cost carriers and full-service carriers. Apart from traditional way of allotting low-cost carriers to short-hauls, airlines are focusing on deploying a greater number of low-cost carriers in long-hauls with inflight connectivity options. Swoop, a subsidiary of WestJet Airlines, is an ultra-low-cost carrier based in Canada which provides in-flight entertainment services through their mobile app. The flights are also equipped with AC power for plugging in devices and enjoy services on the go with easy connectivity such as USB ports.
Aviation industry is looking to upgrade technology in future to reduce costs through Installation of smart galleys which involves self-service in-flight meals, controlled by apps. Airlines can reduce costs through avoiding food packaging and a-la-carte food orders. For increasing the number of flyers, airline companies are introducing several offers on baggage allowances, and reduction of prices in exchange of baggage allowance. For instance, students are allowed extra baggage at free of cost to attract passengers at young age. Extra charges for seat preference is another source of income for airline companies. Seats with extra legroom and window seats that are more lucrative are being monetised for extra revenue generation
Aviation industry is facing competition in many regions with major players looking to consolidate their market and new players offering more and innovative value-added services to attract more flyers. Stringent regulations are a challenge that is a common hurdle for airline companies to tackle. Companies are on the look out to expand the service range and provide connectivity to more destinations. Airlines must try various pricing strategies for staying competitive in the market with offering additional benefits to frequent flyers and make them loyal customers. While ticket pricing is one factor, there can be new avenues for companies to focus for additional revenue sources such as the in-flight sales of goods, ancillary revenue from in-flight entertainment services through advertisements, internet access charges and e-commerce.
- Arjun Das
ICT - Research Analyst