Travel Reference
In-Depth Information
Rosselló and Riera (2012) fi nd that Internet prices appear to be lower than those offered
through other channels, irrespective of quality and quantity, for European package tours, whether
provided by traditional tour operators or by new Internet retailers. This may refl ect the cost
reduction in Internet supply as against traditional call centres and brochure sales. The concurrent
move in package holiday supply to all-inclusive offerings in traditional and mature destinations
has also been examined in European markets, this time by Aguiló and Rosselló (2012) who fi nd
that the all-inclusive tourist has a lower level of spending, of repeat visit intention and of
satisfaction. Their study suggested that the move to all-inclusive was driven not by consumer
demand but by the package tour providers' convenience; this and other similar studies (Anderson
2010; Alegre and Pou 2008) have implications for tour operator pricing strategies.
Airlines
In the case of airlines the most obvious strategic issue is the business model: the introduction of
the low cost carrier model from the 1970s onwards has changed the expectations of tourists in
two ways. Firstly it has opened up many secondary airports and thus increased the number of
destinations available to the independent traveller; secondly it has provided a challenge for the
traditional package holiday operators whose profi ts depended on the bundling of fl ights with
accommodation non-transparently. Calling the operators 'low cost carriers' reminds us that the
so-called 'cheap fl ights' depend on the carrier's costs being kept to the minimum necessary to
operate safely and reliably. This is done by using secondary airports where landing costs and taxes
are cheaper than those demanded by the big hub airports and by providing far fewer services
included in the ticket price, such as baggage handling and food and beverage services. Some
LCCs also charge separately for booking, for seat reservations, for priority boarding, online or
airport check-in and so on, although in the UK they are no longer allowed to advertise their
prices without including taxes and landing charges and there is pressure on them to move to
greater transparency.
These carriers, like the full-service or fl ag-carrying airlines, have adopted yield management
systems to help them to maximize their revenue. Automated booking systems mean that there is
no need to employ large numbers of call-centre staff, again reducing costs. It is easy to test the
way prices rise as the date of take-off gets nearer and more seats have been sold; all you need to
do is to identify a specifi c fl ight (date and time) to a specifi c destination with a specifi c low cost
carrier and check the price of unsold seats once (or more) a week from about three months
before take-off. The smooth rising curve may be broken by promotions or other tactical changes
in price, but if you plot a number of these curves you will fi nd them all very similar in shape.You
will also fi nd that they are good examples of point-pricing: glance at any advertisements in your
local newspapers and you will see examples such as: 'Fly from £22.95' (Flybe 2012); 'Rome,
Warsaw, Venice from £22' (Ryanair 2012). There is a price point at £23 below which fl ights are
clearly 'low cost'. Note that the prices are
from
the price shown; that is to remind the reader that
these are not fi xed single prices with unlimited dates, but they will increase as soon as the system
recognizes that suffi cient seats have been sold at those prices. A useful early study of the LCC
and Full Service Carriers' pricing strategies can be found in Piga and Bachis (2006), with a more
recent study from Pitfi eld (2008) and a case study of Ryanair (Malighetti
et al
. 2009).
From time to time seats on low cost airlines are sold at extremely low prices, such that it is
diffi cult to imagine how the airline can cover its costs at the prices asked; for instance, there are
examples of 'seat sales' where the customer has been able to purchase tickets for very short-haul
fl ights for under £20 sterling. These have largely disappeared even from the most promotion-
friendly low cost carriers, but when they were available they tended to be seats on fl ights which
