Airline Fare Pricing, Research Paper Example

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Research Paper

Although the US airline industry had a positive market  reception from the few customers around the country during its early stages, airline travels were not significantly popular at the third quarter of the last century. The nature of services coupled with the financial demands on the customers were the main reason for the dismal performance witness during the early stages of this mode of transport. Despite the negative market curves at the inception stages of many airline industries, time and other relevant forces changed the economic patterns of air travel across the US. Back in the 1990’s some economists had predicted the market patterns witnessed today (Forsyth, 2009). These economists based their prediction on the unregulated nature of the US airline industry as the subsequent cause of low fares. In addition, these economists added the capitalistic characteristics of the rules used to govern the airline industry as another probable cause of competition in the market.  Currently, the market trends of airline transport have changed tremendously. Interested stakeholders have continually studied the factors that determine market dynamics in the industry. Some of the market dynamics commonly under scrutinization include ticket pricing and the number of consumers embracing the airline travel services (Forsyth, 2009).

Numerous dynamics depicted throughout the evolution period of the US domestic airline industry warrants attention on the causes of these ever changing patterns. Just like any other economic industry in the US, airline industry adopts capitalistic principles in its commercial practices. This means that for one to make an assumption concerning consumer reception and services pricing in the industry, a thorough evaluation and apparisal of the market patterns is inherent. Therefore, a research project serves to answer numerous questions arising from the patterns witnessed in the domestic airline industry in the US (Kothari , 2011).

Inception of Discount airlines or low cost carriers, commonly called LCCs, marked a significant turning point in the US airline industry. Examples of the popular and most successful discount airlines in the US today include Frontier Airlines, Southwest Airlines and Spirit Airlines, among others. These carriers altered the consumers’ perception of air transportation. Initially, sub-industry aimed at addressing the concerns raised by consumers concerning the financially straining nature of air travel. In this case, low cost carriers jumped in and neutralised the attributes of inflexibility and expensive services branded in the air transport. Currently, LCCs services are present in more than 100 American cities today (Fleming & Vasigh, 2010). The ever increasing air service consumers can enjoy the convenience of this expansion and divergence of airline routes across the nation. Evolution of more LCCs as a result of the prevailing capitalistic forces presented another advantage to consumers in terms of competition. Currently, it is more likely to find more than two LCCs operating along the same route. In an effort to secure a substantial portion of the market share, these numerous airline industries adopted the aspect of service differentiation and pricing competition. Entry of one or more airline companies in one route means immense competition for the limited services consumers (Fleming & Vasigh, 2010).

In this context, we will appraise the impact of competition on ticket prices in the domestic airline industry. Just like any other industry, some airline companies may enjoy a larger market share than others. In this case, entrance of a certain airline industry into any given route may dictate the market trends depicted in that route. One of such companies which has the potential of dictating market trends in the industry is Southwest Airlines. Evidently, such companies employ quality and consumer friendly practices in their commercial undertakings.  As stated earlier, market share and ticket pricing tops the list of dynamic market patterns in airline industry. In any given financial period in the airline industry, ticket pricing proves to be the most potent determining factor in securing a market share. At this juncture, this research project serves to evaluate the impact of Southwest Airline’s entry into major US metropolitan market segments (Fleming & Vasigh, 2010).

In this context, it is appropriate to adopt a relevant research question in order to establish the relationship between ticket pricing and market share within the industry. Although the entrance of some established airline companies like Southwest Airlines into any route may causes a considerable change in market patterns, other forces still apply in determining the market share enjoyed by any company. This assumption is developed from a hypothetical perspective on business patters. However, a scientific research exercise can validate such hypothetical assumption. The underlying research question is on whether the entry on Southwest Airline in major metropolitan areas resulted in downing of fares by other Airlines plying the same routes. Before proceeding to answer this question, it is procedural to formulate a research hypothesis that will provide direction for the entire process. An ideal research hypothesis acts as the answer to an underlying question in any research exercise. Therefore, this hypothesis should be relevant to the question in context. In this regard, the hypothesis states that service differentiation determines ticket prices in the US domestic airline industry.  This research aims at either approving or disapproving this statement. Having established the research question and formulated an hypothesis, the next step entails developing an objective methodology that ensures collection of reliable information (Kothari, 2011).

In this research, a quantitative methodology will facilitate acquisition of reliable information. The nature of question in subject demands establishment of a relationship between market share and ticket pricing. This means that quantitative data is necessary for the approval or rejection of the hypothesis. Still on the method, a descriptive research design proves appropriate in supplementing explanation to any resultant data pattern. This research does not involve manipulation of variables. It is a project which involves appraisal of the patterns already happening in the field. Therefore, a descriptive design is helpful in describing any observed trend and reaching a meaningful conclusion. This research incorporates the use of secondary sources in obtaining the required data (Kothari, 2011).  The set of data figures required are ticket prices of different airline companies from the same marget segment. Therefore, any reliable airline prices database like travelocity will serve the purpose.

Since it is a descriptive research design, secondary sources worked best in supplementing the required data sets. The data collection process involved obtaining fare prices of different companies within a similar market segment. This process took approximately two hours from the data collection process to data tabulation. Travelocity proved resourceful during the data collection process. This site provided two sets of data, each set consisting of fare prices of different airline companies from the same route. The ticket price data colllected involved prices of six airline companies all opperating flights in two different routes within the US. Both the data sets depict anytime flight prices for 21’st September 2012. Since the hypothesis statement is narrow and focuses on the causes of price disparity and dynamics within the domestic industry, only flight rates for a single day can serve to show the relationship between the two variables (Kothari, 2011).

After the data collection process, the airline ticket prices were ranked from the lowest to the highest. Tabulation of the results showed the relationship between the prices and the type of services provided by each airline company. Tabulation of the result in a descending order depicts a clear comparison between the two variables under investi gation as postulated in the hypothesis. The tables below shows the data sets of two routes within the US. Each table has three columns showing all the relevant variables under consideration (Kothari, 2011).

Airline ticket prices from New York to Chicago on 21’st September 2012.

Airline Fare Services
Southwest Airlines $ 228.80 Flight only
US Airways $ 231.40 Flight only
American Airlines $ 267.80 Flight and Hotel
Delta Airlines $ 284.50 Flight and Car
Spirit Airlines $ 289.50 Flight and Car
Allegiant Air $ 335.80 Flight, Hotel and Car

 

Air ticket prices from Montreal to Kansas City on 21’st September 2012

Airline Fare Services
Southwest Airlines $ 335.60 Flight only
US Airways $ 365.00 Flight and Hotel
American Airlines $ 375.50 Flight and Car
Delta Airlines $ 377.60 Flight and Car
Spirit Airlines $ 405.00 Flight, Car and Hotel
Allegiant Air $ 412.50 Flight, Car and Hotel

 

The tabulated data show the relationship between fare prices and the tipe of services provides by each company. In the first table, Southwest Airlines, which provides flight only, charges $ 228.80 from New York to Chicago. On the other hand, Allegiant Air, which provides flight, car and hotel services, charges $335.80 for the same route. The second set of data depicts the same trend. For example, Southwest Airlines charges $ 335.60 per ticket from Montreal to Kansas while Delta Airlines, which provides flight and car services, charges $ 337.60 through the same route. From the tabulated results, those airline companies which provide extra services apart from flight service charges more for their tickets than their counterparts which deals with flights only (Calfee, 2010).

In addition, those providing flights only charges the least for their tickets while those providing flights, car and hotel services charges the most prices through similar routes. In this regard, flight charges depends on more factors other than the lowering of prices during competition. Entry of Southwest into metropolitan cities will not cause the lowering of ticket prices to those companies providing extra cervices. The research conclusion approves the hypothesis statement. Therefore, fare prices depend on the services provided and not on the entry of a large airline industry in the market (Calfee, 2010).

Reference List

Calfee, S. M. (2010). Airline ticketing impact of changes in the airline ticket distribution industry : report to congressional requesters. New York: DIANE Publishing

Forsyth, P. T. (2009). Competition Versus Predation in Aviation Markets: A Survey of Experience in North America, Europe And Australia. New York: Ashgate Publishing, Ltd.

Kothari, C. R. (2011). Research Methodology: Methods and Techniques. California: New Age International.

Fleming, K. T. & Vasigh, B. J. (2010). Introduction to Air Transport Economics: From Theory to Applications. London: Ashgate Publishing, Ltd.

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