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Background

The deregulation of the Indian airline industry in 1994 led to increased competition and a 300% rise in passenger numbers over 30 years. Airlines shifted from fixed to variable pricing and adopted sophisticated Revenue Management and Dynamic Pricing systems to optimize profitability and adjust fares based on demand. This competitive landscape features Full-Service Carriers and Low-Cost Carriers, with the latter typically offering lower initial fares that increase closer to departure dates.

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79 views1 page

Background

The deregulation of the Indian airline industry in 1994 led to increased competition and a 300% rise in passenger numbers over 30 years. Airlines shifted from fixed to variable pricing and adopted sophisticated Revenue Management and Dynamic Pricing systems to optimize profitability and adjust fares based on demand. This competitive landscape features Full-Service Carriers and Low-Cost Carriers, with the latter typically offering lower initial fares that increase closer to departure dates.

Uploaded by

X
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BACKGROUND

In 1994, the Indian government deregulated the airline industry, allowing private
companies to enter the market and set their own prices. This led to the creation of
new routes connecting smaller cities and an increase in the number of people flying.
In the previous 30 years, the number of people flying has climbed by 300 percent. As
a result, airlines began to focus on capacity utilization as the key factor in their
profitability, and fixed prices were replaced by variable pricing (Slyke, R.V. and Young,
Yi. 2000). Airlines have long been interested in improving their reservation systems,
which became more important as their networks expanded and their customer base
became more diverse. Prior to deregulation, pricing was mostly intuitive and routine
due to the lack of competition. Airlines could counter seasonal swings in demand by
adjusting ticket prices, and different customer groups had different booking habits. To
optimize their performance in dynamic competitive markets, airlines began to use
sophisticated pricing models that took into account stochastic demand, supply,
service frequency, and capacity choices. These models enabled airlines to
dynamically adjust airfares based on actual bookings and demand projections, as well
as other market and customer-related data (Wallenberg, 2000). Revenue
Management and Dynamic Pricing (RMDP) systems have become an essential part of
the airline industry's IT infrastructure. The airline market is competitive, with Full-
Service Carriers (FSC) and Low-Cost Carriers (LCC) vying for customers. LCCs typically
set their fares lower than FSCs in the initial booking window e.g., 60 or 90 days
before departure), and fares rise as the departure date approaches (Harris, F.H. de B
and Emrich, R.M 2007). The RMDP system assigns booking limitations based on
current prices for each flight, allowing airlines to maximize revenue from perishable
inventory. (Talluria and VanRyzin, 2004)

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