Airlines are constantly looking for ways to maximize their revenue and maintain profitability. One of the methods they use is third-degree price discrimination, which involves charging different prices to different segments of customers. This practice is widespread in the airline industry and has proven to be a successful sales tactic.
The theory behind third-degree price discrimination is simple: customers have different willingness to pay for the same product or service. Airlines use this premise to segregate customers into different categories and offer them separate prices. This allows them to extract the maximum value from every passenger, without leaving any money on the table.
The most common way airlines apply third-degree price discrimination is through fare buckets. In simple terms, a fare bucket is a set of prices for a particular flight, usually based on the booking time, seat availability, and demand. By setting different prices for different fare buckets, airlines can cater to distinct market segments and maximize revenue.
For instance, airlines generally offer lower fares to customers who book early because they perceive them to be price-sensitive and value-oriented. On the other hand, they charge higher prices to those who book at the last minute, as they usually have high urgency and less flexibility. The goal is to attract price-sensitive travelers while still capturing as much revenue as possible from the less price-sensitive ones.
Another way airlines use third-degree price discrimination is through loyalty programs. Airlines offer tiered membership levels that offer different benefits and discounts, based on customers’ flying patterns and spending habits. This helps airlines reward their loyal customers while still capturing additional revenue from their less committed ones.
In addition, airlines also use third-degree price discrimination through positioning. For instance, they often have different prices for different classes of service, such as economy, business, and first class. This allows airlines to offer different levels of service and amenities, catering to travelers’ preferences and budget.
To sum it up, airlines use third-degree price discrimination to sell more airline tickets by offering different prices to different segments of customers. This allows them to maximize revenue and profitability, while also catering to customers’ preferences and budget. By understanding how airlines use this technique, customers can make informed choices and get the best value for their money.
