The mysterious world of airline pricing: innovative practices and strategies for profit

Abstract

PurposeBusiness success and pricing are very closely intertwined. This study aims to explain how businesses can improve their profitability by relying on creative pricing strategies that managers across industries can adopt.Design/methodology/approachThis study uses research from related fields and a detailed analysis of the airline industry to deconstruct its success and identify innovative pricing practices that have helped salvage it.FindingsBased on our analysis, the authors propose several strategies that can help companies control their pricing and leverage it to increase profitability. These include decommoditizing, segmenting the market (up and down), scrutinizing customer behavior, offering versioning and ancillary services, actively promoting these add-ons and using dynamic pricing.Originality/valueThis study takes an unusual approach and look at the airline industry – literally a textbook example of an oligopoly. The authors argue that if companies in an oligopoly – with undifferentiated services – can dig themselves out of the depths of nonexistent profits by using innovative pricing, it should be much simpler for companies in other industries that offer easier differentiation.