Airfares Pricing’s Impact on the Airline Industry

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To a person who travels little, it may seem that air transport is a kind of monolith with uniform prices that depend only on the mileage of the flight. However, such an assumption cannot be considered fair and reasonable. There are many airline companies that exist under severe conditions of the external environment that forces them to set high prices for airfares. The below discussion will focus on the essentials of airfares pricing and the effects these expensive items have on the industry.

To understand the nature of international airfare pricing, it is wise to start from afar. Tariffs for international flights are tied to the current dollar exchange rate. For example, one of the components of an air ticket is an airport tax. It should be noted that the tariffs of all international airlines are pegged to the dollar and are updated in the booking systems at the rate of the national bank for the previous day (Zhou & Zhou, 2019). Linking tariffs for international flights to the dollar or euro is a common global practice due to the fact that the bulk of the costs and mutual settlements for the implementation of international flights are carried out in these currencies.

The main rule is that airfare prices are not fixed and are unchanging amounts. The main cost of any air ticket is the tariff that the airline sets for the air transportation of passengers on a special route, with an emphasis on a specific tariff plan. Any airline has the right to set tariffs depending on its pricing policy, demand for air tickets in a certain direction, time of year, and day of the week (Zhou & Zhou, 2019). Not to mention the fact that the price of tariffs can be changed with the help of promotions held by the airline to sell tickets for flights at the lowest prices.

Hence, it seems reasonable to state that all airlines have their own pricing policy. In addition to the airline’s profit, the ticket price also includes airport, fuel, and agency costs, among others. The ticket itself may be inexpensive, but extra taxes and levies substantially increase the cost of air travel. Tickets for the same location may be purchased from the same firm at various times for varying prices. For instance, the airfare is quite affordable prior to departure, but the day before, it is costlier. Thus, airlines urge people to buy tickets in advance (Lin, 2022). Here, it should be emphasized that this circumstance is one of the main manifestations of the influence of the high cost of air tickets on the industry. Specifically, it is the fact that passengers are “forced” to buy airfares in advance.

Additionally to the separation into classes, there are also distinctions within each class. For instance, the economy may be separated into three to four tariffs, each with its own set of application criteria. Almost all airlines provide non-refundable tickets, which are in high demand among travelers. Non-refundable airfare are low-cost tickets; in order to protect the corporation, these tickets are non-refundable (Pal & Mitra, 2022). If a traveler has bought the least expensive ticket, he must refuse to go or risk losing the money invested on the ticket. Frequently, a combined fare is purchased, which combines non-refundable and returnable fares into a single ticket. As a result, the non-refundable ticket price rules are applicable to the whole flight, not just one section.

Almost all purchasers believe that the price of a ticket rises relying on where it is acquired. But this is not the case: while the traveler searches for the most advantageous box office for them, time passes, other travelers book tickets, and in the end, only the most costly seats remain, and the customer regrets not purchasing the ticket at the first provided price (Mercert & Webber, 2018). This is a fairly common occurrence, particularly when there is little time remaining before takeoff. Sometimes the decisive factor is not hours but minutes. Thus, another effect of airline tickets on the industry is pricing dynamics, which leads to uncertainty and insecurity among passengers in terms of airline pricing.

However, it should be noted here that the latter factor is offset by the flexibility of tariff plans and the ability to choose air tickets from a variety of options. International ticket booking platforms, which handle the sale, provide all their seats on the aircraft simultaneously to all air ticket agencies, and airfares are sold in real time. Specifically, air carriers segment passenger traffic and are likely to offer transportation to both low-paying and high-paying passengers, which is accomplished through an offer consisting of low-cost non-refundable fares and expensive flexible fares.

Another point that affects the price of tickets is the increase in the cost of aviation kerosene. Since the effect of fluctuating oil prices deteriorates the airline’s non-operational business, the corporation’s performance will suffer, making oil price volatility a crucial component in airfares pricing estimates. Due to the ongoing conflict involving Russia and Ukraine and the economic restrictions placed on the Russian Federation by the West, the oil market has been exposed to significant ‘external shocks,’ with supply interruptions and heightened market uncertainty propelling oil prices to all-time highs (Lin, 2022). This has forced a reassessment of the expense of operating each voyage and a decision of whether reducing the frequency of flights will significantly reduce oil usage. In order to effectively maintain their financial foundations, airline companies could also consider cutting back on non-operational pursuits.

Moreover, starting with the emergence of COVID-19 in 2020, the regulatory bodies have urged governments to pursue rescue measures to aid domestic airlines out of economic trouble and prevent widespread unemployment among airline employees. Due to the growth of the pandemic, several airlines are compelled to keep social distances on trips, require passengers to wear masks, and monitor body heat, among other precautions (Lin, 2022). This has unquestionably decreased buyer demand for transportation and made the demand for airline tickets more inelastic, with only a small amount of consumers opting to travel due to compulsions and the majority of consumers becoming less inclined to travel.

Taking the considered factors into account, it might be assumed that the airlines’ pricing policy is justified. Such an assumption is founded on the fact that the industry is affected by numerous dynamic aspects that do not allow the companies to predict and assess the external environment to the necessary extent to make prices lower and more stable. However, the industry compensates for this situation by offering flexible tariffs and a multitude of choices. Regardless of such a state of affairs, the following effects of high-cost and volatile airfares were identified. First, it is the circumstances that force passengers to buy airfares in advance. Second, it is uncertainty and insecurity among passengers. Third, it is their insignificant trust in the airline companies.

References

Lin, D. (2022). Research on the airline industry airfare pricing factors under difficult circumstances. Advances in Economics, Business and Management Research, 656, 868–873.

Mercert, R., & Webber, T. (2018). How to manage seasonality in service industries – The case of price and seat factor management in airlines. Journal of Air Transport Management, 72, 39–46.

Pal, D., & Mitra, S. K. (2022). Do airfares respond asymmetrically to fuel price changes? A multiple threshold nonlinear ARDL model. Energy Economics, 111(1). Web.

Zhou, H. & Zhou, S. (2019). Pricing strategy of multi-oligopoly airlines based on service quality. PLoS ONE, 14(6). Web.

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Airfares Pricing’s Impact on the Airline Industry

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