There can be three pricing models that can be applied to pricing for airline services.
The peak pricing model : A high price is charged at the peak time when the demand for the good or service is high and a moderate and low price is charged in the off peak hours .
Price Discrimination: Different prices are charged for different group of consumers .
Cross subsidization: One group of consumers pay a price higher than the cost of service another group pays a price lower than the cost of service. The first group is the subsidizing group and the other group is the subsidized group.
We choose one flight and discuss which pricing principle will be applicable for that flight.
The Monday Morning Flight from Chicago to New York:
This is a case where the peak pricing principle can be applied. The demand for travelling on Monday mornings is very high among the businessmen. So the airline can reap extra profit by applying the peak pricing rule for the Monday morning flight from Chicago to New York. Since Monday is the beginning of the week there are a large number of business people who have the urgency to reach New York in the morning to carry out their business and trading. For this reason the price for flight from Chicago to New York will be quite high compared to the flights on other days and also at other time of the day. Thus this higher price of flight tickets to New York for the Monday morning flights does not reflect higher cost of service or any additional service provided. But it is reflective of the peak demand. Thus the peak pricing scheme helps the airline to increase its profits.
Works Cited
Pindyck, R., & Rubinfield, D. (2009). Microeconomics (7th ed.). Prentice Hall.
Varian, H. R. (2010). Intermediate Microeconomics A Modern Approach (8th ed.). New York: W. W. Norton & Company.
