Pricing Strategy Of Low Cost Airlines

5130 words - 21 pages

1. IntroductionLow cost airlines such as EasyJet, and Ryanair have developed quickly in the European market in the last five years. The UK market has seen the most dramatic development where by the summer of 2001, these carriers accounted for over 22% of the short haul capacity from London and were present in 58% of the 128 short haul routes operated from this city (source: OAG, 2001). During a five-year period from 1997, the seat capacity offered from London has risen by 17%, and virtually all of this rise (95.4%) was attributable to the low cost carriers.The low cost carriers have both penetrated and grown these markets, principally by garnering a consumer perception that the fares offered are very low. This perception has been developed in no small part by extensive advertising and effective use of public relations. For example, Ryanair has offered fares as low as one penny (plus taxes), and therefore it is not surprising that there is great media coverage of these carriers, which in turn generates more interest in the services. Both Ryanair and EasyJet have been very effective in using media coverage of their legal wrangles with traditional carriers such as British Airways and Lufthansa to promote their services and low fares.While the media has helped these airlines communicate their message of low fares to the public it has also focused on the availability of these very low fares. Some reports offer anecdotal evidence of limited availability of very low fares. Some reports have also demonstrated the range of prices that a group of travellers may have paid for their ticket, arguing implicitly that these airlines should only be called "low fares" airlines if all their fares are low. This research investigates the availability of low fares in various markets under different purchasing scenarios.It is clear that the average fares attained by the low cost airlines are significantly higher than some advertised "lead-in" fares with EasyJet's attaining an average one-way fare in 2001 of while Ryanair's got per paying passenger (source: EasyJet and Ryanair company reports, 2001). However, the anecdotal evidence in the media does not consider the different purposes that people are using the services. Some travellers may indeed be newly generated leisure travellers, while others travellers attracted away from other modes. Business travellers have embraced low cost airlines in Europe , and while there is clear evidence of price elasticity in this market, business travellers are more likely to accept higher fares than their leisure compatriots. This research seeks to assess these issues by examining the pricing strategies adopted by three low cost airlines; Ryanair, EasyJet, and Go.The table below shows the activities of these three low cost airlines and that of the KLM uk low cost brand buzz in the London market in the summer of 2001. Ryanair is active in 35 routes, easyJet in just 14, Go participate in 20 markets and buzz 16. The average weekly...

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