Journal of Travel, Tourism and Recreation

Volume 2, Issue 3, 2020, PP 19-36

ISSN 2642-908X

Airlines' Pricing Strategies and O-D Markets: Theoretical and

Practical Pricing Strategies
Mohamed Ramadan R. Abdelhady1*, Mostafa Mahmoud H. Abou-Hamad2
1
Associate Lecturer at the Faculty of Tourism and Hotels, Fayoum University, Fayoum-Egypt.
2
Associate Professor at the Faculty of Tourism and Hotels, Fayoum University, Fayoum- Egypt.
*Corresponding Author: Mohamed Ramadan R. Abdelhady, Associate Lecturer at the Faculty of
Tourism and Hotels, Fayoum University, Fayoum-Egypt, Email: [email protected]

ABSTRACT
Successful marketing strategies are just as substantial as the engineering for the airlines to survive. Part of
the 4Ps is the pricing strategies of the aviation industry. This is specifically paramount for airlines to
increase the market share in the air transport industry. Although it is conclusive for the airlines to offer
competitive fares, academic studies are rare in such a field. If there are airlines-related academic studies or
literatures available, they usually concentrate on the 4Ps but not on pricing itself. The study aims to
evaluate the pricing strategies and origin-destination (O-D) markets of full-service carriers (FSCs) and low-
cost carriers (LCCs). Furthermore, the authors would like to find out how airlines set their pricing
strategies to compete in a fast- growing and highly competitive market. The findings revealed that the
airlines attempt to segment the demand in each origin-destination (O-D) market by offering different
combinations of price levels and restriction bundles designed to appeal to different groups of potential
passengers with different levels of willingness to pay (WTP). In an effort to achieve this segmentation of
demand, airlines impose purchase and travel restrictions on lower fares designed to act as 'fences' to
prevent passengers with higher values of WTP for air travel from buying at a discount.
Keywords: The Aviation Industry, Pricing Strategies, RPKs, LFs, ASKs, LCCs FSCs, O-D Markets, GDSs.

INTRODUCTION The differences in passenger’s profiles and

expectations are valuable proof to airlines in
The early 20th century witnessed myriad
understanding their passengers and designing
aviation developments as new planes and
their marketing strategies (Aksoy et al., 2003),
technologies entered service. During the First whereas marketing is more than advertising or
World War, the airplane also proved its selling (Pride & Ferrell, 2008; Perreault et al.,
effectiveness as a military tool and, with the 2012). Sensitivity to price is the most important
advent of early airmail service, showed a great major factor affecting purchasing decision
promise for commercial applications (FAA, ((Astutia et al., 2015; Abdelhady et al., 2019).
2017). The air transport industry first appeared According to IATA Economics (2016), the top 3
in the middle of the 1920s (Rapp, 2000) when factors that impact airline loyalty are ticket
first scheduled commercial airline took to flight prices (37%), flight schedule (17%) and onboard
in 1914 (Truxal, 2013), and after the Second comfort (16%).
World War, in the 1940s, it has experienced
tremendous growth (Rapp, 2000; Mamo, 2015). According to recent circumstances, the price
Nowadays, air aviation sector has faced critical became the only element of the marketing mix,
stages of expansion; the gap among travelers' which is exposed to change constantly, more
expectations and perceptions is one of the most than any other element (Gábor, 2010) as well as
significant elements of the air services industry producing revenues (Lee & Carter, 2012).
(Rafati & Shokrollahi, 2011). In addition, Others, however, are related to expenses that are
interaction between purchasers and vendors is also the most flexible element of marketing
facilitated by one or more Mediators strategy (Avlonitis, 2005). Thus, Pricing is one
(Bilotkach& Rupp, 2014).As organizations stick of the main problems facing the administration
to pursue more international strategies, the need (Donnelly & Harrison, 2010) and it has been an
to be able to understand customers in faraway age-old management issue (Cho et al., 2009).
places is increasing (Young & Javalgi, 2007). Although LCCs were able to attract passengers

Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020 19

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

on the basis of value for money (Pels&Rietveld, others will only fly at substantially lower prices.
2004; Sai et al., 2012; Rajaguru, 2016), they Under this approach, airlines charge different
discovered awkwardness in retaining and prices to different consumers with different
building loyal passenger base (Chacon & price sensitivity.
Mason, 2011; Rajaguru, 2016). Thus, In order to
The principle of demand-based pricing is based
struggle the rivalry and to be sustainable,
on consumers’ willingness to pay, as defined by
airlines have to take in consideration the
the price– demand curve in each O-D market.
cornerstones of air transport industry, apply a
convenient strategy, and improve continuously These price differences are not related to cost
(Fedosova, 2016). The highly air transport differences experienced by the airline in
competition has grown extremely (Banerjee providing services to the different demand
&Kanathia, 2006; Vidović et al., 2006; Button segments, only to the differences in price
&Ison, 2008; Fageda et al., 2011; Hamidi et al, sensitivity, demand elasticity and willingness to
2013; Acar & Karabulak, 2015; Bergantinoy& pay this practice is referred to as strict price
Capozzaz, 2015) since air transport deregulation discrimination by economists (Wensveen,
in the US in 1978 (Driver ,2001;Vidović etal.,, 2012).
2006; Banerjee& Kanathia,2006; Button & Ison
Cost-Based Pricing
,2008 ;Gross & Lück ,2011 ;Detzen et al., 2012;
Sarilgan, 2016), thereafter, intra- EU in the The commitment to function a planned benefit
1990s (Schnell, 2003; Knorr &Ţigová, 2004; independent of the number of travelers on
Civil Aviation Authority, 2006; Banerjee & board implies that not as it were aircraft
Kanathia, 2006; Graham & Shaw, 2008; Fageda et proprietorship costs, but crew costs and indeed
al., 2011; Diaconu, 2012; Westermann, 2012; fuel costs, can be considered as settled for
Vidović et al., 2013), and since then the cost of a arranged set of flights.
air travel in the US and Europe has fallen and The marginal costs of carrying an incremental
the size of the airline industry has grown rapidly passenger are therefore very low- essentially the
(Karivate, 2004( cost of an additional meal and a very small
LITERATURE REVIEW amount of incremental fuel. Microeconomics
textbooks make reference to the practice of
Theoretical Pricing Strategies marginal cost pricing‖ in which the producer sets
Air transport industry went through a long prices equal to the marginal cost of producing
growth. The process of globalization, an incremental unit of output.
internationalization and many other factors This hone is one of the hypothetically ideal
greatly increased the amount of passengers. conditions of impeccably competitive‖ markets,
Trade agreements, expansion of cargo which don't exist within the genuine world.
transportation caused greater mobility of Within the brief run, the costs to an carrier of
business travelers. The behavior of leisure working a plan of flights are viably settled.
passengers also changed. All these factors have Subsequently, carriers might not conceivably
had a notable impact on creating of the airline cover their add up to working costs beneath a
pricing strategies (Fedorco &Hospodka, 2013; strict negligible estimating conspire in which
Abdelhady et al., 2018), and it is well-known negligible costs are credited to an incremental
that air carriers use a variety of mechanisms to traveler carried on a flight. An alternative
price discriminate between customers with approach to cost-based pricing is that of
different willingness to pay for travel (Puller & average-cost pricing.
Taylor, 2013).Theoretical Pricing Strategies
include the following: Under this pricing principle, an airline would set
its prices in all O-D markets based on system-
Demand-Based Pricing wide operating cost averages per flight or per
The price elasticities of different demand available seat kilometer (ASK).Average-
segments and different O-D markets reflect their cost estimating over looks carrier taken a toll
sensitivity to the prices of air travel, and the contrasts in giving administrations to diverse O-
airline sets different prices for each segment in D markets. It permits littler markets to advantage
an attempt to maximize its total revenues. The (with misleadingly moo costs) at the cost of
underlying assumption is that there are some higher-density markets that aircrafts can serve
consumers who are willing to pay a very high more productively (e.g., with bigger airplane)
price for the convenience of air travel while (Wensveen, 2012; Abdelhady et al., 2018).

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Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Service-Based Pricing dynamically and controlling capacity (CNN,

2017). Likewise, many FSCs offer last-minute
In theory (and in practice), the notion of fare
deals, either directly or via mediators.
product differentiation can be extended beyond
this simple first- vs. economy-class distinction. The current prevailing practice is to control
Unlike demand-based pricing, service-based demand via seat allocation to various classes
pricing has a differential cost basis for the rather than by offering a single class and letting
airline.Because higher-quality services generally price be the sole variable that controls demand
cost the airline more to produce, this approach (Koenigsberg et al., 2008). Last-minute prices,
cannot be considered price discrimination. which are perceived by passengers as being fuel
field as time goes on thus increasing the risk of
The third hypothetical estimating rule
booked out flights, conveys to the passenger the
employments contrasts within the quality of
idea of a price guarantee, so there will be no
services (and, in turn, within the taken a toll of
cheaper prices for a certain flight at a later point
giving these administrations) as a premise for
in time.
estimating.
As booking goes on, pricing becomes more
Even if the onboard product (i.e., economy seat
cost-orientated (Gross &Lück, 2011). FSCs
and meal service) are the same, lower fares with
prices increase as thedeparture date draws closer
advance purchase requirements actually
(Pitfield, 2005; Roos et al., 2010; Belova, 2015;
represent an opportunity cost savings to the
Malighettia et al., 2015), and this period is
airline, as the airline is better able to reduce
characterized by a lower price elasticity of
uncertainty about loads on future departures and
demand (Belova, 2015).In the USA, the Civil
reduce the risk of lost revenue potential from
Aeronautics Board (CAB) used a mileage-based
empty seats (Wensveen, 2012).
formula to ensure equal prices for equal
PRICING STRATEGIES OF FSCS distances.
In different industries, firms use a great number A passenger wishing to fly on a non-stop flight
of approaches so as to understand the customers' from Boston to Seattle (approximately 4000 km
behavior and sell their services or products with or 2500 miles) would pay the same price as a
the highest profit margin. passenger traveling on a double-connection
service from Boise, Idaho, to Miami, Florida,
One of them is revenue management (RM)
covering the same distance. Airlines were
(Belova, 2015). Revenue management is a set of
required to charge the same price for either
special pricing strategies developed by airlines
passenger, despite the fact that the Boise–Miami
(McAfee &Velde, 2006; Belova, 2015) which
O-D market is substantially smaller, and the
has a long history starting with the air transport
costs to the airline of providing double-
deregulation in the late 1970s (Poelt, 2011). RM
connection service on smaller aircraft are
let airlines survive without government support
substantially higher on a per passenger basis.
(Wetzelaer, 2013; Belova, 2015).
Different O-D markets can have prices not
For the last few decades, the airlines all over the related to distance traveled, or even the airline’s
world have started to use this strategy (Belova, operating costs, as airlines match low-fare
2015). competitors to maintain market presence and
share of traffic.
FSCs offer a wide range of class of service (first
class, business class and economy class) with In terms of different price levels, airlines were
various sale conditions (Klein &Loebbecke, allowed to offer only first-class and unrestricted
2003; Snyder & Tai, 2012; Belova, 2015) and economy fare (coach or tourist class) products,
restrictions within each reservation booking both of which were tied to the mileage-based
designator (RBD) and each cabin (Fedorco fare formula. I
&Hospodka, 2013; Belova, 2015), so as to have
t is also possible that low volume O-D markets
the possibility to charge different types of
that are more costly to serve on a per passenger
passengers with different prices (Belova, 2015).
basis will see higher prices than high-density O-
Discriminant pricing or price differentiation is
D markets, even if similar distances are
the underpinning of RM.
involved.
Unbundling takes this to a new level and
The relationship between O-D markets and
dimension (R.W.Mann, 2011), and thus RM is
airline prices is illustrated in fig. (1) (Belobaba,
to maximize revenues by adjusting fares
2009)

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Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Figure1. O-D Market Price Differences

Source: (Belobaba, 2009)
PRICING STRATEGIES OF LCCS Fedorco & Hospodka, 2013) and ticket changes
are either completely prohibited or subject to
The practice of dynamic pricing typical of LCCs any administrative change fee (Civil Aviation
is generally regarded as a form of price Authority, 2006; Fedorco & Hospodka, 2013).
discrimination between business passengers and LCCs business model targeted precisely that
leisure passengers on a single trip (Salanti et al.,
market, through very low fares. As a result, a
2012). Price is the weapon of many LCCs in the significant share of the market was suddenly
competition for market share (Poh et al., 2011), able to travel. This explains the success of the
which has become a major competitor in the air LCCs concept which was able to offer low fares
transport industry all over the world (Beltran, and, with it, conquer the market that was
2014; ELFAA, 2015). previously economically excluded from flying.
LCCs, such as EasyJet and Ryanair in Europe A precondition for success was that low fares
and Southwest an-fd JetBlue in the U.S. are could only be sustainable if there was a low-cost
forcing major changes in pricing schemes operation. So, in fact, the low-cost is a condition
(Koenigsberg et al., 2008; Forgas et al., 2010; for the strategy followed and not the strategy
Lordan, 2014), as LCCs caused a reduction in itself. In this way, the most correct designation
airfares offered by FSCs (Mentzer, 2011; for these services should be low fare airlines
Fernando, 2012). LCCs generally unbundled (LFAs), instead of LCCs (Macário et al., 2007).
most, if not all, services offered to passengers
RESEARCH METHODOLOGY
including in-flight services, booking and check-
in, with the objective of offering a basic service The study aims to have a closer look at pricing
with all additional services provided for a fee. strategies and O-D markets of FSCs and LCCs;
The success of this approach to pricing is the study has used ticket restrictions to estimate
evidenced by the growing popularity of LCC the effect of market concentration on price
style operations (Whyte & Randall, 2014). discrimination. Specifically, there are selected
O-D markets such as: (CDG-FCO-CDG// FCO-
Few of LCCs segment market on the basis of
CDG-FCO)- (LHR-MAD-LHR// MAD-LHR-
willingness to pay for the air ticket with
MAD)- (FRA-IST-FRA// IST-FRA-IST))-
different conditions and restrictions. On the
(CAI-SHJ-CAI// SHJ-CAI-SHJ), which are
contrary, most of LCCs offer a single price, at
served by Air France, Alitalia, British Airways,
any time, for secondary of service at each
Iberia, Lufthansa, Turkish Airlines, Egypt Air,
departure. This fare is mostly growing with
and Air Arabia.
approaching departure. As offered air tickets are
one-way tickets (Civil Aviation Authority, Passenger booking data were obtained from
2006; Fedorco&Hospodka, 2013), these tickets Galileo GDS, one of the four major GDSs used
are nonrefundable (Francisa et al., 2004; Civil by travel agents and airlines to book tickets and
Aviation Authority, 2006; Kim & Lee, 2012; handle ticketing activities. These airlines are

22 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

governmentally owned and now face Pricing Strategies of Air France- Economy
competition in the open market, especially after Class
the airline deregulation act of 1978.
Figure (2) illuminatesthe pricing strategies of
RESEARCH FINDINGS Air France, a round trip- economy class (Paris-
Roma -Paris). It turns out from the figure that
Airfares pricing have always been a source of the total fare of the ticket on-board of Air
embarrassment for travelers. What is the best France (CDG-FCO-CDG) is 145.10 US Dollars
time to purchase airfares? (USD). The pieces of baggage allowance are
Why might travelers taking the same trip pay two pieces of baggage per economy class
significantly different prices for the same seat? passenger; the weight of one piece should not
Why does a round trip become cheaper than the exceed 23KG per economy class passenger.
one-way flight? Is it fair to purchase an airfare Air France fees are 45 Euros for the first and 70
for an itinerary cheaper than a ticket for just a Euros for the second checked baggage.It is also
part of it? remarkable from the figure that the pieces of
These observations make passengers wonder carry-on baggage permitted is 1PC of cabin
why they pay higher prices for shorter flights. baggage per economy class passenger will be
Therefore, the study pursues to evaluate the carried in the cargo compartment free of charge;
pricing strategies of FSCs and LCCs based on the weight of one piece should not exceed
monitoring of air ticket prices in different 12KG.
markets and in different time periods, as
follows:

Figure2. Pricing Strategies of Air France- Economy Class (CDG-FCO-CDG)

Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Alitalia- Economy Class Paris- Roma). According to fig.(3),the total fare
(CDG-FCO-CDG) of the ticket on-board of Alitalia (FCO-CDG-
FCO) is 140.70 US Dollars (USD). The pieces
Figure (3) exemplifies the pricing strategies of
of baggage allowance are two pieces of baggage
Alitalia, a round trip- economy class (Roma–

Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020 23

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

per economy class passenger; the weight of one that the pieces of carry-on baggage permitted is
piece should not exceed 23KG per economy 1PC of cabin baggage per economy class
class passenger. Alitalia fees are 55 Euros for passenger will be carried in the cargo
the first and 75 Euros for the second checked compartment free of charge; the weight of one
baggage. It is also remarkable from the figure piece should not exceed 8KG.

Figure3. Pricing Strategies of Alitalia- Economy Class (FCO-CDG-FCO)

Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Air France and Alitalia- the table that the pieces of carry-on baggage
Economy Class (FCO-CDG-FCO) permitted is 1PC of cabin baggage per economy
class passenger will be carried in the cargo
Table (1) delineates the pricing strategies of Air
compartment free of charge; the weight of one
France and Alitalia (Sky Team Alliance-FSCs),
piece should not exceed 12KG. On the other
a round trip- Economy class (Paris-Roma–
hand, the pieces of baggage allowance on board
Paris// Roma–Paris- Roma).
of Alitalia are two pieces of baggage per
It seems that table (1) assures that the total fare economy class passenger; the weight of one
of the ticket on-board of Air France (CDG- piece should not exceed 23KG per economy
FCO-CDG) is 145.10 US Dollars (USD) class passenger.
compared to 140.70 US Dollars (USD) on-board
Alitalia fees are 55 Euros for the first and 75
of Alitalia (FCO-CDG-FCO).
Euros for the second checked baggage. It is also
The pieces of baggage allowance are two pieces obvious from the table that the pieces of carry-
of baggage per economy class passenger; the on baggage permitted is 1PC of cabin baggage
weight of one piece should not exceed 23KG per economy class passenger will be carried in
per economy class passenger. Air France fees the cargo compartment free of charge; the
are 45 Euros for the first and 70 Euros for the weight of one piece should not exceed
second checked baggage. It also turns out from 8KG.Non-refundable Tickets are permitted to

24 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Re-issue /Re-route without charging reissue restrictions, such as an advance purchase

/rerouting penalty fees on board of Air France. requirement, a minimum and/or maximum stay
On the other hand, Non-refundable Tickets are requirement “at least one Saturday night” ,
not permitted to Re-issue /Re-route without penalties linked to changes, non-refundable
charging reissue /rerouting penalty fees on status and non-eligibility for infant and child
board of Alitalia. discounts.
Furthermore, Cancellations and Changes are not As Aircraft Cabin Classes on board of Air
permitted to Re-issue /Re-route/ Re-validation France and Alitalia (CDG-FCO-CDG// FCO-
on board of Air France and Alitalia in case of CDG-FCO) are economy and business classes.
no-show. These fares can carry substantial
Table1. Pricing Strategies of Air France and Alitalia-Economy Class (CDG-FCO-CDG// FCO-CDG-FCO)

ELEMENTS OF
COMPARISON
AIRLINE
 SKY TEAM ALLIANCE
ALLIANCE
TOTAL FARES  145.10 USD  140.70 USD
BOOKING CLASSES  ECONOMY CLASS  ECONOMY CLASS
ORIGIN-DESTINATION
 CDG-FCO-CDG  FCO-CDG-FCO
(O-D)
FREE BAGGAGE
 0 PC(0 KG)  0 PC(0 KG)
ALLOWANCE
FREE CARRY-ON
BAGGAGE  1PC (12KG)  1PC (8KG)
ALLOWANCE
CANCELLATION  TICKET IS NON-  TICKET IS NON-
CHARGES REFUNDABLE IN CASE OF REFUNDABLE IN CASE OF
CANCEL/ NO-SHOW. CANCEL/ NO-SHOW.
 CHANGES ARE NOT
 CHANGES ARE NOT
PERMITTED IN CASE OF
PERMITTED IN CASE OF
NO-SHOW.
NO-SHOW.
NO- SHOW CHARGES
 CANCELLATIONSARE
 CANCELLATIONSARE NON-
NON-REFUNDABLE IN
REFUNDABLE IN CASE OF
CASE OF NO-SHOW.
NO-SHOW.
 CHANGES ARE
 CHANGES ARE PERMITTED
CHANGES CHARGES PERMITTED FOR
FOR REISSUE/
REISSUE/
REVALIDATION.
REVALIDATION.
MINIMUM STAY  3D  3D
MAXIMUM STAY  12M  12M
AIRCRAFT CABIN
 ECONOMY-BUSINESS  ECONOMY- BUSINESS
CLASSES
AIRCRAFT MODEL  EQP 333/ 36(C) - 265(Y)  EQP 343/ 21(C) - 227(Y)
Source: (Prepared by the Researchers, 2020)
Pricing Strategies of British Airways- (LHR-MAD); the weight of one piece should
Economy Class (LHR-MAD-LHR) not exceed 32KG per economy class passenger.
Alitalia fees are 85 Euros for the first and 85
Figure (4) clarifiesthe pricing strategies of
Euros for the second checked baggage (MAD-
British Airways, a round trip- economy class
LHR).
(London - Madrid- London).
It is also remarkable from the figure that the
It turns out from the figure that the total fare of
pieces of carry-on baggage permitted is 1PC of
the ticket on-board of British Airways (LHR-
cabin baggage per economy class passenger will
MAD-LHR)is 313.90 US Dollars (USD).
be carried in the cargo compartment free of
The free pieces of baggage allowance are two charge; the weight of one piece should not
pieces of baggage per economy class passenger exceed 23KG.

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Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Figure4. Pricing Strategies of British Airways- Economy Class (LHR-MAD-LHR)

Source: (Prepared by the Researchers, 2020)

Pricing Strategies of Iberia- Economy Class per economy class passenger. Iberia fees are 25
(MAD-LHR-MAD) Euros for the first and 25 Euros for the second
checked baggage (MAD-LHR)and 23 Euros for
Figure (5) demonstrates the pricing strategies of
the first and 23 Euros for the second checked
Iberia, a round trip- economy class (Madrid-
baggage (LHR-MAD).It is also remarkable from
London-Madrid). According to fig.(5), the total
the table that the pieces of carry-on baggage
fare of the ticket on-board of Iberia (MAD-
permitted is 1PC of cabin baggage per economy
LHR-MAD) is 142.80 US Dollars (USD). The
class passenger will be carried in the cargo
pieces of baggage allowance are two pieces of
compartment free of charge; the weight of one
baggage per economy class passenger; the
piece should not exceed 23KG.
weight of one piece should not exceed 32KG

Figure5. Pricing Strategies of Iberia- Economy Class (MAD-LHR-MAD)

Source: (Prepared by the Researchers, 2020)

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Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Pricing Strategies of British Airways and the weight of one piece should not exceed 32KG
Iberia- Economy Class (Oneworld Alliance- per economy class passenger. Iberia fees are 25
FSCs) Euros for the first and 25 Euros for the second
checked baggage (MAD-LHR)and 23 Euros for
Table (2) exemplifies the pricing strategies of
the first and 23 Euros for the second checked
British Airways and Iberia (Oneworld Alliance -
baggage (LHR-MAD). It is also remarkable
FSCs), a round trip- Economy Class (London-
from the table that the pieces of carry-on
Madrid-London// Madrid-London-Madrid). The
baggage permitted is 1PC of cabin baggage per
table confirms that the total fare of the ticket on-
economy class passenger will be carried in the
board of British Airways (LHR-MAD-LHR) is
cargo compartment free of charge; the weight of
313.90 US Dollars (USD), compared to 142.80
one piece should not exceed 23KG.Non-
US Dollars (USD) on-board of Iberia (MAD-
refundable Tickets are permitted to Re-issue
LHR-MAD). The free pieces of baggage
/Re-route/ Re-Validation charging 130 USD on
allowance are two pieces of baggage per
board of British Airways, Compared to 80 USD
economy class passenger (LHR-MAD); the
on board of Iberia. These fares can carry
weight of one piece should not exceed 32KG
substantial restrictions, such as an advance
per economy class passenger. Alitalia fees are
purchase requirement, a minimum and/or
85 Euros for the first and 85 Euros for the
maximum stay requirement “at least one
second checked baggage (MAD-LHR). It seems
Saturday night”, penalties linked to changes,
that table (2) assures that the pieces of carry-on
non-refundable status and non-eligibility for
baggage permitted is 1PC of cabin baggage per
infant and child discounts. As Aircraft Cabin
economy class passenger will be carried in the
Classes on board of British Airways and Iberia
cargo compartment free of charge; the weight of
(LHR-MAD-LHR// MAD-LHR-MAD) are
one piece should not exceed 23KG. On the other
economy and business classes.
hand, the pieces of baggage allowance are two
pieces of baggage per economy class passenger;
Table2. Pricing Strategies of British Airways and Iberia- Economy Class (LHR-MAD-LHR// MAD-LHR-MAD)

ELEMENTS OF
COMPARISON
AIRLINE ALLIANCE  ONEWORLD ALLIANCE
TOTAL FARES  313.90 USD  142.80 USD
BOOKING CLASSES  ECONOMY CLASS  ECONOMY CLASS
ORIGIN-DESTINATION
 LHR-MAD-LHR  MAD-LHR-MAD
(O-D)
FREE BAGGAGE
 2PCs (64KG-HR-MAD)  0 PC (0 KG)
ALLOWANCE
FREE CARRY-ON
BAGGAGE  1PC(23KG)  1PC(23KG)
ALLOWANCE
CANCELLATION  TICKET IS NON-
 TICKET IS NON-REFUNDABLE
CHARGES REFUNDABLE IN CASE
IN CASE OF CANCEL.
OF CANCEL.
 CANCELLATIONS ARE
 CANCELLATIONS ARE NON-
TICKET IS NON-
NO- SHOW CHARGES REFUNDABLE IN CASE OF NO-
REFUNDABLE IN CASE
SHOW.
OF NO-SHOW.
 CHARGE 130.00 USD
 CHARGE 80.00 USD FOR
CHANGES CHARGES FOR REISSUE/
REISSUE/ REVALIDATION.
REVALIDATION.
MINIMUM STAY  3D  3D
MAXIMUM STAY  3M  12M
AIRCRAFT CABIN
 ECONOMY-BUSINESS  ECONOMY-BUSINESS
CLASSES
AIRCRAFT MODEL  EQP 738/ 24(C) - 120(Y)  EQP 321/ 16(C) - 158(Y)
Source: (Prepared by the Researchers, 2020)

Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020 27

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Pricing Strategies of Lufthansa- Economy not exceed 23KG per economy class passenger.
Class (FRA-IST-FRA) Alitalia fees80 Euros for the second checked
baggage (FRA-IST), and fees 705 TRY for the
Figure (6) elucidates the pricing strategies of
second checked baggage (IST-FRA).It is also
Lufthansa, a round trip- economy class
remarkable from the figure that the pieces of
(Frankfurt-Istanbul- Frankfurt). It turns out from
carry-on baggage permitted is 1PC of cabin
the figure that the total fare of the ticket on-
baggage per economy class passenger will be
board of Lufthansa (FRA-IST-FRA) is 375.10
carried in the cargo compartment free of charge;
US Dollars (USD). The free piece of baggage
the weight of one piece should not exceed 8KG.
allowance isone piece of baggage per economy
class passenger; the weight of one piece should

Figure6. Pricing Strategies of Lufthansa- Economy Class (FRA-IST-FRA)

Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Turkish Airlines- class passenger; the weight of one piece should
Economy Class (IST-FRA-IST) not exceed 30KG per economy class passenger.
It is also remarkable from the figure that the
Figure (7) demonstrates the pricing strategies of
pieces of carry-on baggage permitted is 1PC of
Turkish Airlines, a round trip- economy class
cabin baggage per economy class passenger will
(Istanbul-Frankfurt-Istanbul). According to
be carried in the cargo compartment free of
fig.(7), the total fare of the ticket on-board of
charge; the weight of one piece should not
Turkish Airlines (IST-FRA-IST) is 173.30 US
exceed 8KG.
Dollars (USD). The free piece of baggage
allowance is one piece of baggage per economy

Figure7. Pricing Strategies of Turkish Airlines- Economy Class (IST-FRA-IST)

Source: (Prepared by the Researchers, 2020)

28 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Pricing Strategies of Lufthansa and Turkish economy class passenger; the weight of one
Airlines- Economy Class (Star Alliance- piece should not exceed 30KG per economy
FSCs) class passenger. It is also remarkable from the
table that the pieces of carry-on baggage
Table (3) exemplifies the pricing strategies of
permitted is 1PC of cabin baggage per economy
Lufthansa and Turkish Airlines (Star Alliance-
class passenger will be carried in the cargo
FSCs), a round trip- Economy class (Frankfurt-
compartment free of charge; the weight of one
Istanbul- Frankfurt // Istanbul- Frankfurt-
piece should not exceed 8KG.
Istanbul).It seems that table (3) assures that the
total fare of the ticket on-board of Lufthansa Non-refundable Tickets are permitted to Re-
(FRA-IST-FRA) is 375.10 USDollars (USD), issue /Re-route without charging reissue
compared to 173.30 US Dollars (USD) on-board /rerouting penalty fees on board of Lufthansa
of Turkish Airlines (IST-FRA-IST). and Turkish Airlines. Furthermore,
Cancellations and Changes are not permitted to
The free piece of baggage allowance on-board
Re-issue /Re-route/ Re-validation on board of
of Lufthansa is one piece of baggage per
Lufthansa and Turkish Airlines in case of no-
economy class passenger; the weight of one
show.
piece should not exceed 23KG per economy
class passenger. Alitalia fees 80 Euros for the These fares can carry substantial restrictions,
second checked baggage (FRA-IST), and fees such as an advance purchase requirement, a
705 TRY for the second checked baggage (IST- minimum and/or maximum stay requirement “at
FRA). It turns out from the table that the pieces least one Saturday night”, penalties linked to
of carry-on baggage permitted is 1PC of cabin changes non-refundable status and non-
baggage per economy class passenger will be eligibility for infant and child discounts. As
carried in the cargo compartment free of charge; Aircraft Cabin Classes on board of Lufthansa
the weight of one piece should not exceed and Turkish Airlines (FRA-IST-FRA // IST-
8KG.On the other hand, the free piece of FRA-IST) are economy and business classes.
baggage allowance is one piece of baggage per
Table3. Pricing Strategies of Lufthansa and Turkish Airlines- Economy Class (FRA-IST-FRA// IST-FRA-IST)

ELEMENTS OF COMPARISON

AIRLINE ALLIANCE  STAR ALLIANCE

TOTAL FARES  375.10 USD  173.30 USD
BOOKING CLASSES  ECONOMY CLASS  ECONOMY CLASS
ORIGIN-DESTINATION (O-  FRA-IST-FRA  IST-FRA-IST
D)
FREE BAGGAGE  1PC (23KG)  30KG
ALLOWANCE
FREE CARRY-ON  1PC (8KG)  1PC (8KG)
BAGGAGE ALLOWANCE
CANCELLATION CHARGES  TICKET IS NON-  TICKET IS NON-REFUNDABLE IN
REFUNDABLE IN CASE OF CANCEL/NO-SHOW.
CASE OF
CANCEL/NO-SHOW.
NO- SHOW CHARGES  CANCELLATIONS  CANCELLATIONS ARE NON-
ARE NON- REFUNDABLE IN CASE OF NO-
REFUNDABLE IN SHOW.
CASE OF NO-SHOW.
 CHANGES ARE NOT PERMITTED
IN CASE OF NO-SHOW FOR
REISSUE/ REVALIDATION.
 CHANGES CHARGES  CHANGES ARE  CHANGES ARE PERMITTED FOR
PERMITTED FOR REISSUE/ REVALIDATION.
REISSUE/
REVALIDATION.
MINIMUM STAY  7D  3D

Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020 29

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

MAXIMUM STAY  12M  12M

AIRCRAFT CABIN  ECONOMY-BUSINESS  ECONOMY-BUSINESS
CLASSES
AIRCRAFT MODEL  EQP 738/ 16(C) -  EQP 321/ 38(C) - 147(Y)
138(Y)
Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Egypt Air- Economy weight of one piece should not exceed 23KG
Class (CAI-SHJ-CAI) per economy class passenger. Egypt Air fees
1592 EGP(CAI- SHJ)and 560 AED (SHJ-CAI)
Figure (8) elucidates the pricing strategies of
for the second checked baggage.
Egypt Air, a round trip- economy class (Cairo-
Sharjah -Cairo). It is also remarkable from the figure that the
pieces of carry-on baggage permitted is 1PC of
It turns out from the figure that the total fare of
cabin baggage per economy class passenger will
the ticket on-board of Egypt Air (CAI-SHJ-
be carried in the cargo compartment free of
CAI) is 371.60 US Dollars (USD).The free
charge; the weight of one piece should not
piece of baggage allowance is one piece of
exceed 8KG.
baggage per economy class passenger; the

Figure8. Pricing Strategies of Egypt Air- Economy Class (CAI-SHJ-CAI)

Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Air Arabia- Economy for purchase at the airport is 20 KG; additional
Class (SHJ-CAI-SHJ) weight will be subject to excess baggage rates.
Figure (9) demonstrates the pricing strategies of It is also remarkable from the figure that the
Air Arabia, a round trip- economy class pieces of carry-on baggage permitted is 1PC of
(Sharjah -Cairo- Sharjah).It turns out from the cabin baggage per economy class passenger will
figure that the total fare of the ticket on-board of be carried in the cargo compartment free of
Air Arabia (SHJ-CAI-SHJ) is 348.00 US charge; the weight of one piece should not
Dollars (USD).Passengers will be charged for exceed 10KG.
baggage. The only baggage allowance available

30 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

Figure9. Pricing Strategies of Air Arabia- Economy Class(SHJ-CAI-SHJ)

Source: (Prepared by the Researchers, 2020)
Pricing Strategies of Egypt Air and Air airport is 20 KG on-board of Air Arabia;
Arabia- Economy Class (FSCs vs. LCCs) additional weight will be subject to excess
baggage rates.It is also obvious from the table
Table (4) illuminates the pricing strategies of
that the pieces of carry-on baggage permitted is
Egypt Air and Air Arabia (FSCs vs. LCCs), a
1PC of cabin baggage per economy class
round trip- Economy class (Cairo- Sharjah -
passenger will be carried in the cargo
Cairo // Sharjah –Cairo- Sharjah). According to
compartment free of charge; the weight of one
table (4), the total fare of the ticket on-board of
piece should not exceed 10KG. Refundable
Egypt Air (CAI-SHJ-CAI) is 371.60 US Dollars
Tickets are permitted to Cancel/ Re-issue /Re-
(USD), compared to 348.00 US Dollars (USD)
route with charging reissue /rerouting penalty
on-board of Air Arabia (SHJ–CAI-SHJ). The
fees. These fares can carry substantial
free piece of baggage allowance on-board of
restrictions, such as an advance purchase
Egypt Air is one piece of baggage per economy
requirement, a minimum and/or maximum stay
class passenger; the weight of one piece should
requirement“ at least one Saturday night”,
not exceed 23KG per economy class passenger.
penalties linked to changes, non-refundable
Egypt Air fees 1592 EGP (CAI- SHJ) and 560
status and non-eligibility for infant and child
AED (SHJ-CAI) for the second checked
discounts. It turns out from table (4) that the
baggage. It is remarkable from the table that the
restrictions of LCCs are more stringent
pieces of carry-on baggage permitted is 1PC of
compared to FSCs. As Aircraft Cabin Classes
cabin baggage per economy class passenger will
on board of Egypt Air and Air Arabia (CAI-
be carried in the cargo compartment free of
SHJ-CAI// SHJ–CAI-SHJ) are economy and
charge; the weight of one piece should not
business classes.
exceed 8KG. On the other side, the only
baggage allowance available for purchase at the
Table4. Pricing Strategies of Egypt Air and Air Arabia- Economy Class (CAI-SHJ-CAI// SHJ-CAI-SHJ)

ELEMENTS OF COMPARISON

TOTAL FARES  371.60 USD  348.00 USD

BOOKING CLASSES  ECONOMY CLASS  ECONOMY CLASS
ORIGIN-DESTINATION (O-D)  CAI-SHJ-CAI  SHJ-CAI-SHJ
FREE BAGGAGE ALLOWANCE  1PC(23KG)  0 PC(0 KG)

Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020 31

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

FREE CARRY-ON BAGGAGE

ALLOWANCE  1PC(8 KG)  1PC(10 KG)

 72 HOURS BEFORE
DEPARTURE: 30% OF
THE FARE AND
SURCHARGE OR A
MINIMUM OF 150 AED
PER PASSENGER EACH
WAY.
 72 TO 24 HOURS
BEFORE DEPARTURE:
30% OF THE FARE AND
SURCHARGE OR A
MINIMUM OF AED 200
PER PASSENGER EACH
WAY.
 AIR ARABIA DOES
CANCELLATION CHARGES  CHARGE 65.00USD. NOT HAVE A REFUND
POLICY ONCE THE
BOOKING IS PAID FOR
(EXCEPT FLIGHTS
TO/FROM CAIRO). ON
CANCELLATION, AIR
ARABIA WILL RETAIN
THE REMAINING
AMOUNT AS A CREDIT
TOWARDS A FUTURE
FLIGHT WHICH CAN
BE USED FOR TRAVEL
WITHIN ONE YEAR
FROM THE DATE OF
PAYMENT BY THE
SAME PASSENGER
ONLY.
 CHANGES ARE NOT
 CHARGE 95.00 USD.
NO- SHOW CHARGES PERMITTED IN CASE
OF NO-SHOW.
 72 HOURS BEFORE
DEPARTURE: 25% OF
THE FARE AND
SURCHARGE OR A
MINIMUM OF 150 AED
PER PASSENGER EACH
 CHANGES ARE WAY.
CHANGES CHARGES
PERMITTED.  72 TO 24 HOURS
BEFORE DEPARTURE:
25% OF THE FARE AND
SURCHARGE OR A
MINIMUM OF AED 200
PER PASSENGER EACH
WAY.
MINIMUM STAY  7D  3D
MAXIMUM STAY  12M  6M
AIRCRAFT CABIN CLASSES  ECONOMY-BUSINESS  ECONOMY- BUSINESS
AIRCRAFT MODEL  EQP 738/ 24(C) - 120(Y)  EQP 321/ 38(C) - 147(Y)
Source: (Prepared by the Researchers, 2020)
DISCUSSION OF FINDINGS attractive to those with a higher willingness to
pay (WTP), while still offering those with lower
Airlines' pricing strategies and O-D markets WTP a viable travel option. Ticket acquirement
restrictions are designed to make low fares less and beforehand purchasing requirements for

32 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020

Airlines' Pricing Strategies and O-D Markets: Theoretical and Practical Pricing Strategies

abatement fares ambit from 7 to 30 days in best based pricing to make prices dependent on costs
O-D markets. Therefore, a Saturday night (or which have to be incurred in order to provide
longer) minimum stay has historically been the air service. Under this pricing principle, an
associated with most abatement fares. airline would set its prices in all O-D markets
Furthermore, the lower-priced fare services based on system-wide operating cost averages
carry non-refundability altitude and abandoning per flight or per available seat kilometers
fees and/or change. (ASKs). Average-cost pricing ignores airline
cost differences in providing services to
The restrictions become added astringent as the
different O-D markets. This paper focuses on
akin of abatement from the abounding
the pricing strategies and O-D markets for FSCs
abridgement book increases. The highest
and LCCs based on monitoring of air ticket
unrestricted economy fare (Y) is almost five
prices in different markets and in different time
times that of the lowest discount fare with
periods to match the supply with demand and
restrictions, , in spite of the fact that this
accomplish market equilibrium. There are
proportion can be as incredible as eight times
numerous variables influencing airlines'
the most reduced fare in a few comparative
pricing strategies, and O-D market. Type of
markets. In reality, any business passenger who
market is an important factor that must be taken
is not able to or does not wish to stay over
into consideration by new airline. On the market
Saturday night on his/her business trip has little
with larger segment of business passengers,
choice but to purchase the highest “Y” fare.
LCCs have to offer a better service with higher
Even if a business traveler is willing to stay over prices. Seasonality and peak and period are
Saturday night, the lower fares are not an option other factors that must be taken into
if the trip cannot be booked more than 7 days in consideration.
advance or if the traveler wants to retain the
Consequently, the new entrant airline should set
flexibility to make changes and/or obtain a
in advance reasonable prices in peak periods to
refund should the trip have to be cancelled.
avoid selling out the capacity with lower yields.
These strategies led to higher load factors (LFs)
With increased prices airlines should shift price-
and increased unit revenues (revenue passenger-
sensitive passengers to low-demanded flights
kilometer/ available seat-kilometer), as airlines
and raise revenue from tickets sold to time-
embraced the notion of pricing based on their
sensitive passengers.
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Citation: Abdelhady, M., & Abou-Hamad, M “ Airlines' Pricing Strategies and O-D Markets: Theoretical
and Practical Pricing Strategies”, Journal of Travel, Tourism and Recreation, 2(3), 2020, pp.19-36.
Copyright: © 2020 Mohamed Ramadan R. Abdelhady. This is an open-access article distributed under the
terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and
reproduction in any medium, provided the original author and source are credited.

36 Journal of Travel, Tourism and Recreation V2 ● I3 ● 2020