Pricing is essential in determining fare levels, restrictions, and service amenities for several products in a market which is origin-based. St. Louis Lambert International Airport (STL) employs pricing strategies based on demand, cost, and service. STL fare structure mirrors two strategies: product differentiation and price discrimination. The latter allows different pricing for similar products with same production costs and is based on the consumer’s ability to pay (Cook & Billig, 2017). The former allows different pricing for commodities having diverse costs of production and varying features.
Revenue Management System (RMS) makes it possible to determine the number of seats available at any particular fare level. RMS employs market segmentation criteria, targeting travelers in the business and leisure segments creating three classes: economy, first, and business. The three classes offer different pricing options aiming to collect more potential revenue from the market. The Civil Aeronautics Board (CAB) regulates worth valuation by using a mileage-based criterion ensuring equal pricing elements for same distances. Employing different charging criteria, overbooking, and the capacity of flight by RMS; with high fixed proportions of operating costs for aircraft schedule commitment, ensures maximization of revenue and profit (Cook & Billig, 2017). RMS will ensure excessive booking to avoid revenue loss and mix the fare classes to maximize profits.
Liberalized charging techniques will utilize fees which are not related to traveled distance or STL’s operating costs matching low-fare competition, aiming to maintain traffic sharing and market presence. Competition in STL’s market requires the adoption of low price-based costing initiative which reduces costs to match competitors offering low fares and passengers’ price expectations (Tang, 2017). Adopting low price-based mechanism will provide a competitive advantage to STL over other airports offering low prices.
Question: What actions would be undertaken to ensure loss minimization and profit maximization in STL?
Cook, G., & Billig, B. (2017). Airline operations management: A management textbook. Routledge.
Tang, R., Y. (2017). Airport Privatization: Issues and Options for Congress. Congressional Research Service. Web.