All's 'fare' in love and war: is aggressive pricing a new competitive reality?

20 March, 2018

Bankruptcy and subsequent consolidation across the US airline industry have delivered the majors a low cost base and strong market positions, especially at their main hubs. But a combination of lower fuel prices and a resurgence of low price competition has created downward pressures on yields over the past year.

These may be recoverable, but there is a constant threat of Ultra Low Cost Carrier (ULCC) entry on city pairs that have been lost as major airlines consolidated – a network phenomenon that occurred in Europe and Asia as Low Cost Carriers (LCCs) have successfully gained dominant positions.

Compared with other developed regions there is relatively lower connectedness for medium sized airports since consolidation. As those airports (and their local economic interests) become more aggressive in their marketing activities, and as ULCCs expand, a new network and pricing dynamic will appear.

Unlike their Asian and European full service peers - who are much more exposed to LCC pressures - US airlines have not resorted to establishing low cost subsidiaries. Instead they have used various pricing strategies on their mainline operations. To date this appears to have been successful. As low cost competition grows and the majors’ cost bases rise, this may call for new responses.

But many questions remain...

  • How effective are existing pricing strategies like Basic Fares in competing in the long run with ULCCs?
  • How are the network carriers defending their hubs from LCC and ULCC incursions?
  • What prospect is there of establishing LCC subsidiaries as parent company costs rise?
  • What role can loyalty play in this ultra competitive environment, when for example the vast majority of travellers will only fly with the airline once a year?
  • With yields under pressure, investing into product and the customer experience is vital; how effective are the measures being adopted?

This will be one of the topic areas discussed at the forthcoming CAPA- Centre for Aviation Americas Aviation Summit that takes place in Houston, USA between April 16-17, 2018.

Understanding aviation markets is CAPA’s great strength and passion and this year's agenda includes a variety of topics sure to generate interest. All's 'fare' in love and war: is aggressive pricing a new competitive reality? will be part of Session Three, entitled 'North America' and will take place on the afternoon of 16-Apr-2018.

The high-level Americas Aviation Summit is a forum for debate and discussion of strategic issues facing the region’s aviation industry and it is attracting airline and travel industry CEOs from across the Americas region, Asia, Europe and the Middle East.

It is a key time in the United States as it approaches the next generation of aviation. As consumer demands change rapidly, as infrastructure needs remain unsatisfied, and as longstanding policies are under attack, the US airlines are unprecedentedly profitable. There is much that needs to be fixed if they are not to be marooned in the present, domestically and internationally.

FIND OUT MORE... visit the CAPA Americas Aviation Summit homepage to find out more about this not-to-be-missed opportunity to discuss relevant issues impacting the US aviation sector and learn meaningful insights from your industry peers.