British airways is the largest airlines in the united kingdom based on their fleet size. They follow various yield management techniques to extract maximum revenues from their customers.
"Produce management is a way which can help a firm to market the right inventory product to the right kind of customer, at the right time and then for the right price. " (Anthony Ingold 2000, p. 3) Produce management can lead to price discrimination. English airways offer various charges for the customers with regards to the class and date of travel. The price deviation for the same trip is determined by various factors and can better be explained by the following economic theories.
Price discrimination is out there when a particular firm charges different prices to different customers for the same product or service, no matter costs. By practicing price discrimination, airlines are able to earn greater profit, since potential buyers with greater willingness and capacity to pay often pay higher prices than do those with lesser determination and capacity to pay.
British Airways encourage their customers to reserve the seat tickets well in advance of their journey time frame by lowering the prices of future journeys. This way, they can calculate their cash flow well in advance plus they also know how full the airfare is going to be. It helps them determine the demand towards the voyage date with respect to the demand. In the event the demand increases towards date of trip, the costs are increased appropriately. If the demand is significantly less than the capability of the airline flight, the airfare still has to leave with clear seats that are perishable commodities. In such instances, the airlines may quote the lowest price in comparison to their competitors to be able to gain market advantage and make best use of left seats. This sort of price discrimination is named second level price discrimination that involves businesses offering off their services deemed to be surplus capacity at lower prices than the previously published/advertised price. [Price discrimination - www. tutor2u. net]. The sensation of price discrimination is defined in Desk 1.
Price elasticity of demand
Price elasticity is the way of measuring change of volume demanded per unit change in price. Price elasticity is afflicted by various factors like substitutes, need and duration. English Airways employs price elasticity of demand to divide their customers into two categories depending on their need of travel. Low need customers like tourists are often adaptable thus far changes. They look for better bargains well in advance of their trip. High necessity customers are those like running a business travelers whose quest dates will be fixed and do not have flexibility to change their travel dates. Their journeys are unplanned until near journey time frame. So Uk Airways offers various charges habits for customers relating to their needs. A going to customer whose times are versatile and plans in advance are offered a lesser price if booked in advance. Business customers whose times are set will be prepared to pay higher amount to the departure time frame. So they are simply making the utmost benefit from every class of folks taking advantage of their needs.
Both the principles - price discrimination and price elasticity of demand are better known through the costs shown in following table (accumulated from official English airways website - www. britishairways. com - on 6th Dec 2009)
Law of demand
According to the law of demand, number demand of something or service varies inversely using its price. This pertains to the number of chairs allotted to a particular course in the airline flight. United kingdom airways run a very few plane tickets with business course between Aberdeen and London. Since the price of business school travel is high, demand because of this class is suprisingly low and hence just a few seats are allotted to business category passengers. And yes it can be noticed that there are no price changes in this category along with the date. As the costs of economy class seat tickets are low, these are abundant in variety to provide more range of customers. The price of the solution is then chosen based on the amount of chairs available and the demand of the ticket on a particular day. This process can better be discussed by the resource and demand graph shown below.
Demand curve helps to determine the partnership between the price of service and the demand of service. In the case of British airways, the supply of services is mostly constant. However, the demand ranges depending on various factors like day of the week, seasonal changes, time of travel, etc. All these factors keep shifting the demand curve (D1 and D2).
The above graph helps the British airlines to determine what price is usually to be fixed for several demand on a specific day. As reviewed, if ever the demand curve moves (demand changes), the purchase price also changes appropriately.
Finally I conclude stating that United kingdom airways is pursuing various produce management techiniques. By doing so, these are maximising on the income by charging different amount to different customers predicated on their essentials and willingness to pay. This price deviation is also discussed using various financial theories like price discrimination, price elasticity of demand and demand graph.
- Anthony Ingold, Ian Yeoman, Una McMahon-Beattie (2000). "Yield management: Approaches for the Service Sectors" Edition II
- Sylvain Daudel, Georges Vialle, Barry K. Humphreys (1994). "Yield management: applications to air carry and other service industries"
- Microeconomics, Price Discrimination [online] - Available from http://tutor2u. net/economics/revision-notes/a2-micro-price-discrimination. html (Reached between 01-12-2009 and 06-12-2009)
- British Airways standard website [online] - Available from http://www. britishairways. com (Utilized on 06th December 2009)
- Demand curve [online] - Available from http://en. wikipedia. org/wiki/Demand_curve (Utilized on 04th December 2009)
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