UK/US fares
Paxing All Over The World
mixture
Gordon Bennett
Thank you, I think ... but I've just pushed the call bell and asked the cabin crew for an ice bucket to soak my head in.
Gordon Bennett
Thank you, I think ... but I've just pushed the call bell and asked the cabin crew for an ice bucket to soak my head in.
Let me run through this one again.
Setting the revenue side of a business has nothing, repeat nothing, to do with costs. It is about determining what is the maximum amount of revenue you can get.
The more sophisticated businesses (and in revenue/yield management airlines are generally up at the top there) will then try and "segment" their market, to try and get the maximum amount each will pay. It's too difficult to do this for each potential traveller individually, but yield management does try to come close.
So if you can charge more where booked from the London end than from the New York end, so be it. If people in London paying in pounds will pay more than those paying in dollars, that is what you do.
If I pony up at LHR 5 minutes before things close and offer £10 to go to New York, you may feel that's £10 to the good if there are empty seats. However, this leads to an expectation that it can be done again, and those who would have paid the higher fare may now follow this strategy. This is known as "revenue dilution", where a lower-priced offer doesn't only attract new passengers but also diverts to these tickets those who would have paid a higher fare.
If BA find they can get £800 return from London to New York, they may find they can only get £400 from someone doing Madrid-London-New York. Likewise Iberia may find they can get £800 for Madrid to New York, but only get £400 from someone doing London-Madrid-New York. This is why such inconvenient connections can come in cheaper, although the seat costs of the two-sector flights are obviously greater.
Costs only come into it at the very end, where you find that despite your best revenue endeavours your business has made a loss, although allocating the revenue for connecting flights across the different sectors is a whole discussion point in itself for the accountants - it was one of the things that led to the final financial downfall of BMI, all those Star Alliance connecting passengers through London from different long-haul carriers, who kept most of the revenue.
Setting the revenue side of a business has nothing, repeat nothing, to do with costs. It is about determining what is the maximum amount of revenue you can get.
The more sophisticated businesses (and in revenue/yield management airlines are generally up at the top there) will then try and "segment" their market, to try and get the maximum amount each will pay. It's too difficult to do this for each potential traveller individually, but yield management does try to come close.
So if you can charge more where booked from the London end than from the New York end, so be it. If people in London paying in pounds will pay more than those paying in dollars, that is what you do.
If I pony up at LHR 5 minutes before things close and offer £10 to go to New York, you may feel that's £10 to the good if there are empty seats. However, this leads to an expectation that it can be done again, and those who would have paid the higher fare may now follow this strategy. This is known as "revenue dilution", where a lower-priced offer doesn't only attract new passengers but also diverts to these tickets those who would have paid a higher fare.
If BA find they can get £800 return from London to New York, they may find they can only get £400 from someone doing Madrid-London-New York. Likewise Iberia may find they can get £800 for Madrid to New York, but only get £400 from someone doing London-Madrid-New York. This is why such inconvenient connections can come in cheaper, although the seat costs of the two-sector flights are obviously greater.
Costs only come into it at the very end, where you find that despite your best revenue endeavours your business has made a loss, although allocating the revenue for connecting flights across the different sectors is a whole discussion point in itself for the accountants - it was one of the things that led to the final financial downfall of BMI, all those Star Alliance connecting passengers through London from different long-haul carriers, who kept most of the revenue.
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Setting the revenue side of a business has nothing, repeat nothing, to do with costs. It is about determining what is the maximum amount of revenue you can get.
Afterall, if I'm standing on a street corner offering you a hotdog, there's absolutely no reason for me to even contemplate the possibility of charging you a million bucks for it.
Unless you're deliberately setting out in the business of screwing people by picking numbers out of your hat, you need some idea of costs to give you an idea of the sort of ballpark area of minimum price you need to set.
Once you've got an idea of minimums, sure you can play around like the airlines do at selling the same product for different prices to different punters.... but you still need to know where that base is !
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The perfect price is the price the punter is prepared to pay. Cost of production is irrelevant.
I can imagine in some circumstances somebody might be prepared to pay $100 for a hotdog, or $50 for a gallon of gas, or $10 for a sandwich (see LCC's on-board pricing). Of course I'd be called a bar-steward for selling at 'unethical prices', but so what. In a capitalist world the law of supply and demand is paramount.
I also doubt that anyone in this industry could actually tell you what it costs to move a passenger, even a typical passenger, from point A to B. Too many variables. Fixed costs might be easy, but variable costs would be impossible to isolate down.
I can imagine in some circumstances somebody might be prepared to pay $100 for a hotdog, or $50 for a gallon of gas, or $10 for a sandwich (see LCC's on-board pricing). Of course I'd be called a bar-steward for selling at 'unethical prices', but so what. In a capitalist world the law of supply and demand is paramount.
I also doubt that anyone in this industry could actually tell you what it costs to move a passenger, even a typical passenger, from point A to B. Too many variables. Fixed costs might be easy, but variable costs would be impossible to isolate down.
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"The perfect price is the price the punter is prepared to pay. Cost of production is irrelevant."
perfect for whom?
If the punter (s) pay less than the cost of production it is not perfect for the seller/manufacturer as they will eventually go bust
You can even say it's not good for the punter as it reduces his/her future choice but in this day and age no-one cares
If you are talking about valuing a product then you are correct - it is only worth, in asset terms, what the market will pay but that is not necessarily "perfect"
perfect for whom?
If the punter (s) pay less than the cost of production it is not perfect for the seller/manufacturer as they will eventually go bust
You can even say it's not good for the punter as it reduces his/her future choice but in this day and age no-one cares
If you are talking about valuing a product then you are correct - it is only worth, in asset terms, what the market will pay but that is not necessarily "perfect"
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Cost enters into the matter in two ways.
- Over the short run, the price paid must always exceed the incremental cost (e.g., extra fuel, catering, etc). Otherwise, no value in carrying the punter.
- Over the long run, the sum of the prices paid (total revenue) must exceed total cost, otherwise the company goes broke.
Over the long run, the sum of the prices paid (total revenue) must exceed total cost, otherwise the company goes broke.
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HH - sorry if I wasn't clear. I was referring to the airline when I said the perfect price is ...
The dynamics for the customers are quite different.
The dynamics for the customers are quite different.
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pricing impact on our non rev journeys
Very interesting thread, guys with inputs from people who clearly understand the science of revenue management at a network airline.
Remember all this wisdom next time you are checking availability for your own non rev flights on any airline other than your own. Using a site like idDeals.com to check seat availability forecasts always do this on a sector by sector basis as this will give you the closest to the 'actual' result.
In the example of BRU-LHR-JFK, if you are standing by on this route then the number of seats available LHR-JFK on a BRU-JFK query will be different from the seat availability on a GVA-JFK availability that includes the exact same transatlantic flight.
So always best to check BRU-LHR and LHR-JFK separately.
Remember all this wisdom next time you are checking availability for your own non rev flights on any airline other than your own. Using a site like idDeals.com to check seat availability forecasts always do this on a sector by sector basis as this will give you the closest to the 'actual' result.
In the example of BRU-LHR-JFK, if you are standing by on this route then the number of seats available LHR-JFK on a BRU-JFK query will be different from the seat availability on a GVA-JFK availability that includes the exact same transatlantic flight.
So always best to check BRU-LHR and LHR-JFK separately.
