Nowadays, many industries or companies are having price discrimination to earn their profit, especially those entertainments company like cinema and theme park. Those tickets were sold different price to different categories of customers in such a way that students, children and elderly were given a discounted price while the normal adult will be paying the normal price. Besides, airline companies were also having price discrimination. The headline of the article that I had chosen to discuss is “A traveller’s guide to airline price discrimination”.
Price discrimination is a pricing strategy that charges customers different prices for the same product or service. The seller charges each customer with the maximum price that he is willing to pay. In more common forms of price discrimination, the seller will place customers in groups based on certain attributes and charges each group with a different price. The motivation simple: the desire to sell more units and earn more money. By charging different prices to different customers, companies can grab the maximum consumer surplus available in the market. The practice is present across different industries and it is more common than you might think. In fact, most companies do it all the time. Whenever you notice “two-for-one special”, student discount, reduction coupon or voucher, you’re witnessing price discrimination in action.
As price discrimination involves charging different prices to different sets or category of consumers for the same good, companies can charge different prices depending on several criteria such as quantity bought (e.g. lower unit price when higher quantity is bought), time of use (higher price at peak times), age profile (e.g. discounts for OAPs) or when unit is bought (e.g. discounts for buying early). The main principle behind price discrimination is that a firm is trying to make use of different price elasticities of demand. If some people have a very inelastic demand, it means that they are willing to pay a higher price. If the firm can set higher prices for these consumers which can afford or willing to pay, it can increase its revenue and profits. While the other consumers which more sensitive to prices will respond to special offers and price discounts. The firm can benefit if they can separate these consumers and will reduce their consumer surplus.
According to the article, price discrimination has been successfully implemented and developed across a wide range of services such as transportation (flights, trains, LRT, car services such as Uber), tourism and hospitality (restaurants, hotels, amusement parks), communication services such as mobile phones, and even electricity. When it comes to airline pricing, a whole new playing field was created with the introduction of low-cost carriers in the 1970s, when Pacific Southwest Airlines was founded. An additional boost came in the mid-1990s with the introduction of the “peanut airlines” such as Easyjet and Ryanair in Europe and their peers in Australia, New Zealand and Asia in the early 2000s. There are a few factors that are going to influence the airfare that the consumer pay.
The first factor that influences the airfare that consumer pay is timing is key. First, everything depends on when you purchase your ticket. If you buy in March for a trip that will take place in August, you are going to pay significantly less than someone who buys a ticket at the last minute. Generally, people who plan their holidays well in advance are more concerned about paying a lower price of airfare than those who book it closer to the departure date. There is no hard and fast rule, but if you buy a ticket several months in advance it tends to be cheaper. If demand for the particular flight is high, then the airline starts to jack up the price of that flight. It means that the remaining tickets will only be bought by people who willing to pay a higher price. If a particular flight ticket is not selling very well, the airline will do the opposite way and reduce the price of the flight. By having this lower price flight, it will attract more people who are sensitive to prices and ensures that the flight will fill up.
Ideally, the airline would like to fill up the plane with passengers paying the most they are willing to pay. There is no point to sell a very cheap ticket and having the flight sold out many weeks in advance. Many people will be wondering why does the price of the airline ticket is changing from hour to hour. Most of the people that previously had bought the flight ticket for a several of time especially those bag packer, they may have experience of looking for an airline ticket and seeing a flight for £200. On the next day when they return to buy a ticket, but the flight ticket had gone up to £220. This is very annoying but that is a price strategy that all the airline companies are having it which known as price discrimination. The airline will reserve a certain number of economy tickets at a low price to attract early customers that more sensitive to price. But, if the tickets for flight are selling well, it can afford to charge higher prices for the remaining few tickets. The airline is trying to capture as much consumer surplus as possible.
Furthermore, travel in mid-September on a Sunday morning will also influence the airfare that consumer pay. The airfare will also depend on which month that you will travel. Most of the people have limited options and would usually take off during school holidays. For these people, vacationing in mid-September would not really be an option. By knowing this, airlines had differentiated between peak and off-peak demand periods and charge different rates of airfares. This is known as the peak-load pricing. Peak-load pricing refers to the practice of charging higher prices in high-demand periods. Another example where peak-load pricing is applied would be travelling in different periods of the day. Generally, there are flight times that are considered as “unpopular” and for those the demand is lower. An example would be an early Sunday morning flight. Airfares for return flights on a Sunday evening will be more expensive than those for the same flight on a Sunday morning, simply because people want to make the most of their vacation or weekend, and thus choose to take a later flight.
Another factor that influences the airfare is either seat options or a Saturday night stay-over. Airlines also use versioning, a form of price discrimination where different prices are applied based on the quality of the transport service provided. Several forms of the same ticket are available to customers. The high-quality version of an airfare is more expensive as it provides the traveller with options such as more flexible to modify flight dates and even cancellation of the ticket without paying a penalty. On the opposite end, the low-quality version of the airfare is “restricted”. There are also versions that are considered as “damaged”, such as a fare with a Saturday night stay-over. Additionally, low-cost airlines like Easyjet or Ryanair will charge the consumer extra when they have several special request such as choosing your seat or checking in luggage. Other examples of versioning include the airfare of travelling in business class is higher than travelling in economy class because passengers in business class benefit from a more spacious seat, better meals, as well as more personalized attention from the airline staff.
Finally, quantity discounts and frequent-flyer loyalty programs are also one of the ways that shows how airlines apply different pricing for airfares. In the case of Ryanair, the airline will provide a personalized quote on demand for those travelling in bigger groups, while Wizz Air has a discount club, with different options tailored to passengers’ specific needs, such as traveling as a couple or in groups of up to five members. Like any other companies, all the airlines target their consumers by using different pricing policies to increase their sales and there’s no reason why you shouldn’t do the same. So if you’re planning a trip this summer, be it on your own, with another person, or with a group of friends or family, keep these points in mind in order to secure the best possible deal when booking your airfare. Price discrimination does not have to be a negative thing, as there are consumers who clearly benefit from it. Some even go further and use special websites such as SecretFlying or HolidayPirates to take advantage of mistakes made by companies using price discrimination. Airline companies play the game, and you can too.
Price discrimination is one of the major issues that happen around the world and it will remain for upcoming years as well. The incentives towards price discrimination and the ability to price discriminate will be growing in the coming years as sellers will be increasingly tempted to engage in differential pricing. Internet has played a crucial role in helping general public to get best out of the price discrimination due to information of products and services easily available on the Web and ease of buying from any supplier. Therefore, the stress is likely to be on different ways to hide price discrimination. Sellers are always tracking every moment of their customers to best fit their needs or to attract them to their products in the form of loyalty card, security camera, coupons, store credit card and many other forms of incentives. Besides that, governments and others non-profit organizations are also likely to continue playing an important role, in order to protect the welfare of the general public without hurting the businesses. We as a general public should also be self-conscious about the price discrimination and should accept if reasonable or look for the best option if available. Lastly, we should protect our privacy to the extent which is within our control.