An Approach to the Determination of Optimal Airline Fares: Some Useful Insights on Price Elasticities, Monopoly Power and Competitive Factors in the Airline Industry

Abstract

Within the airline industry, demand curves can be derived externally by survey methods and cost curves can be generated internally by astute accounting procedures. The tradi tional tools of microeconomic analysis can be used in a practical way to arrive at profit maximizing fares. The optimizing procedures are not sensitive to the sampling ration in the survey and are therefore generally applicable. An empirical case study provides some useful insights on the competitive factors in the airline industry that help determine market segmentability, price elasticities of demand, and monopoly power.