Harmonizing to international trade organic structure air hoses organic structure, International Air Transport Association ( IATA ) , India ‘s domestic air travel demand grew at 14 % in June compared to last twelvemonth figures, doing it the 2nd fastest in the universe. India recorded 2nd fastest growing rate after Brazil, which reported a demand enlargement of 15.1 % in June[ 1 ]. The industry recorded a load factor of 78.3 % , which is consistent with the planetary norm of 79.4 %[ 2 ].
It has been observed that the air ticket monetary values vary with the rider burden across different clip slots in a twenty-four hours and paths ( different set of origin-destination ( O-D ) combinations ) .
The heavy traffic paths like Delhi-Mumbai have important rider volume for most of the clip in a twenty-four hours and hence, the figure of air hoses runing between these paths is greater in figure. This consequences in competitory pricing of tickets on these paths. Similarly, the monetary values besides vary across different times, for illustration, the forenoon and flushing flights holding greater rider volume. To harvest maximal benefits, the air hoses explore attractive pricing chances. Largely, the aircrafts employed on these paths are bigger to provide to this heavy demand.
On the other manus, for low traffic paths like Mumbai-Nagpur, really few air hoses operate and hence, they set monopolistic monetary values. The aircrafts employed on these paths are smaller, so to cover the fixed cost of operations, the air hoses charge extortionate monetary values per ticket on these paths. The air hoses set different monetary values for the same distance on across different paths.
For the same distance, the saturated domestic air hose industry in the US shows far more volatility in air ticket monetary values. The heavy competition in this market consequences into this sort of tendency in pricing behavior.
This implies that the monetary value of an air ticket is a variable entity dependant on assorted factors. The aim of the undertaking is to analyze the ticket pricing behavior in Indian Airline Industry. Besides, we aim to benchmark these on some of the parametric quantities with concentrated domestic air hose ticket monetary values in the US.
For the intent of this undertaking, a set of air paths providing to tier-1 and tier-2 Indian metropoliss were chosen. To compare and benchmark the result of the survey, US domestic paths and a low distance international path were chosen. The inside informations of the paths are given below[ 3 ]:
For the intent of our survey we have taken the undermentioned combinations of O-D braces:
Heavy Traffic domestic paths in India
Low Traffic domestic paths in India
Domestic paths in the United states
Low distance international path from India
The monetary value points for the chosen paths were collected on a day-to-day footing. The standards used for roll uping the monetary value points are described below:
The monetary value points collected were for one-way trip merely.
Flights offering lowest menu between the selected O-D braces were chosen.
Dayss to Fly: Two sets of monetary value points were collected – Date of Journey ( DoJ ) as July 17th ( 15 yearss to DoJ ) and August 1st ( 30 yearss to DoJ ) . During the initial stage of the undertaking, the monetary values were recorded on alternate yearss. When the ‘days to wing ‘ were 14-15 yearss, the monetary value points were recorded on a day-to-day footing.
The monetary value points were collected for different times of the twenty-four hours – forenoon slot ( 6 am – 9 am ) , afternoon slot ( 12 noon – 3pm ) and flushing slot ( 6 autopsy – 9 autopsy ) for each O-D brace and for each of the ‘Days to wing ‘ combinations.
Channelss for engagement of air ticket: Merely cyberspace ( online ) manner for engagement of air tickets was used. The monetary value points were collected from air hoses ‘ web sites and travel web sites ( Makemytrip.com and Yatra.com ) for Indian domestic and India-Singapore air ticket engagement. For analyzing the US domestic paths, three travel web sites were chosen – Expedia.com, Travelocity.com, and Orbitz.com.
The monetary value points collected are inclusive of the base menu and all the revenue enhancements levied. The flights chosen for the survey are non-stops flights as the monetary values alteration with the Michigans ( distance additions with recreations ) .
The informations collected for air ticket pricing was grouped as domestic heavy traffic paths and domestic visible radiation traffic paths. The information for paths, Delhi-Mumbai and Bangalore-Kolkata, was grouped as domestic heavy traffic. The information for paths Mumbai-Nagpur and Delhi-Indore was grouped as domestic visible radiation traffic. Then, two regressive theoretical accounts where developed based on these informations sets with monetary value as dependent variable and distance, clip slot, yearss to wing, manner of engagement ( air hose web site and travel web sites ) , and type of air hoses as independent variables. The regressive theoretical account gave us the basic relationship of monetary value with the independent variable parametric quantities.
A correlativity matrix was generated to measure the impact of competition on the monetary values of air tickets.
The information was analysed to compare the monetary value per kilometer for Indian domestic heavy traffic and Indian domestic visible radiation traffic paths.
The construct of monetary value volatility index ( PVI ) was developed to compare the monetary value fluctuations over yearss for Indian domestic and US domestic airliners.
To understand the pricing mechanisms adopted by different air hoses, telephonic interviews were conducted with the selling and operations executives of MakeMyTrip.com and British Airways. The aim was besides to understand the monetary value fluctuations on different travel web sites. For illustration, the principle for these monetary value fluctuations could be different fee/ committees charged by travel web sites.
Heavy Traffic domestic paths in India
Typically, the heavy traffic domestic paths in India are between the metro metropoliss like Mumbai, Delhi, Chennai, Kolkata and Bangalore. These metropoliss are commercial hubs and power Centres in the state. Heavy traffic is observed between these braces of metropoliss in all manners of conveyance. The air passage is no exclusion to this phenomenon. From the collected information points, it was observed that the monetary value volatility on Delhi-Mumbai and Bangalore-Kolkata paths was non really important. Besides, the monetary value fluctuations between the different times of the twenty-four hours were non important. The monetary values for all the air hoses winging on these paths were comparable. Largely, the monetary value increased during the last 3-4 yearss of going of the flight. Otherwise, it was largely changeless. The monetary value was more or less changeless across assorted travel web sites and air hose web sites. The chief factors responsible for this typical behavior exhibited in air ticket pricing on these paths are as follows:
Competition: Almost all the domestic air hoses fly between these O-D braces. Besides, each participant flies 4-5 flights between these O-D braces. The competition has led to each air hose charge its monetary value near to its fringy cost of winging and operations, which explains why the menus of all the air hoses are comparable. No air hose has the inducement to divert from their fringy cost covering pricing scheme. They rely on the volumes instead than higher borders on these paths. The ground for the ‘not changing monetary values ‘ across different times is the presence of option for leisure travelers to travel for other air hoses at somewhat different clip and acquire a better trade for winging. So, this has led to a changeless monetary value across different times. As all the air hoses fly on these paths, all of them have tie ups with the all travel bureaus and web sites. Each of them has a similar price reduction strategies for each of these travel bureaus and hence, the monetary value fluctuations across these web sites can non be observed for these O-D braces.
Differential Slab-based Pricing Scheme: The air tickets for most of the domestic air hoses in India are classified as Business category and Economy category. Business category travel is maximal between the tubes and hence, all the air hoses offer that at comparable monetary values. The economic system category is farther divided into O, P, M, N, etc. slabs. In each slab, there are 7-10 seats and are priced otherwise. At any given clip, the monetary values indicated on the company or travel web sites reflect the lowest menu slab ticket available at that clip. If the tickets are booked good in progress, say 25-30 yearss before of the day of the month of travel, rider is expected to acquire a ticket in the lowest menu slab. As clip for going comes by the tickets in the lower menu slab get exhausted and the rider gets exposed to higher monetary value slab tickets. But on heavy traffic paths like those of Delhi-Mumbai, this consequence of slab-based pricing is somewhat diluted as the air hoses adjust the monetary values to take into consideration the intense competition and fright of losing their rider to other air hoses. This slab-based consequence is conspicuously observed when there are 3-4 yearss left for going and about all the air hoses have sold their low menu slab tickets. At this point of clip, it was observed that there was a important addition in the monetary value of tickets by all air hoses across travel web sites.
Bulk ticket trade for air travel web sites: Many times, it is observed that the air tickets available on air travel web sites are cheaper than those of air hose web site, as is the instance with Air India. The ground for this is that these air travel web sites go for a majority trade with the air hoses and tickets in the lower menu slab. So, one time the tickets in lower slab are sold by the air hose to riders it moves to the higher slab, but the travel web sites have tickets in lower slabs available and hence, the rider benefits by booking the tickets from travel web sites instead than from the air hose web sites.
Travel Distance: The air travel distance besides determines the air menu for the tube. The distance between Delhi-Mumbai is less every bit compared to Bangalore-Kolkata. The ATF demand is higher for Bangalore-Kolkata path than Delhi-Mumbai path. Besides, the operational disbursal is lesser in Delhi-Mumbai instance. As a consequence of this, the air menu is significantly less on this path as compared to Bangalore-Kolkata path.
The tendencies highlighted in the above treatment can besides be observed diagrammatically.
Figure 1: Monetary value forms from company web site for forenoon slot flight ( Bangalore – Kolkata path )
Figure 2: Monetary value forms for forenoon slot flight [ informations recorded from three different web sites ] ( Bangalore – Kolkata path )
Low Traffic Domestic Routes in India
Typically, these paths are between tubes and tier-2 metropoliss like Delhi-Indore, Mumbai-Nagpur, etc. There are few frequent flyers on these paths. Largely people travel between these paths for concern intents and holiday. Vacation travel forms a majority of the traffic. These travelers are really monetary value medium and largely look out for the cheapest of the options available. They are willing to go at subsequently day of the months and times if they get better trade. Few air hoses operate with a direct flight on these paths ; most of them have break-journey ( one-stop ) . Largely, they exhibit a monopolistic behavior but see the elastic purchasing behavior of the client while pricing the tickets. There is a difference in the monetary values of the tickets at different times of the twenty-four hours. The chief factors which determine the air ticket monetary values on these paths are as follows:
Competition: Very few air hoses operate on these paths. There are really few participants who offer direct flights. The deficiency of competition gives a monopoly to the operators. They charge the tickets at a higher monetary value for forenoon flights, but bear down them at lower monetary values during afternoon. The forenoon flights normally cater to the demands of the people who go to metros for concern intents and are apathetic to monetary values and hence, are willing to pay higher monetary value. The afternoon flights normally cater to the demands of monetary value sensitive holiday travelers and therefore, supply them with lower monetary values.
Differential pricing slabs: On these paths, the air hoses do n’t set differential pricing slabs but change the monetary values strictly on demand at given point of the clip. They keep the monetary values low if you book the tickets 25-30 yearss in progress. Then, based on the demand they increase it. But as the going day of the month attacks, if they find that there is non adequate demand and there is a chance of some seats traveling vacant due to higher menu, they cut down the menu to do people going by train switch to their air hoses. The air hoses somewhat mark-up the ticket monetary values on Friday eventides and Monday forenoons to profit from the inelastic demand on these paths. The air hoses operate on these paths clearly to provide monetary value sensitive crowd and IT employees from tier-2 metropoliss working in tubes.
Seasonality: The monetary values of tickets for these paths are significantly higher during the gay seasons as the air hoses predict a heavy demand for the people going to their place towns during festivals and exchanging air travel due to shortage of train and bus tickets during festivals.
Travel Distance: The air travel distance and tenancy per Km determines the monetary value of the air tickets on these paths. The Mumbai-Nagpur distance is greater and besides its tenancy per Km is more every bit compared to Delhi-Indore. Hence, Mumbai-Nagpur air ticket monetary value is higher as compared to Delhi-Indore.
The graphical representation of the tendencies observed on Delhi – Indore path are shown below.
Figure 3: Monetary value forms for flushing slot flight [ informations recorded from three different web sites ]
Figure 4: Monetary value forms for flushing slot flight for the air hoses offering non-stop flights
Figure 5: Monetary value forms for forenoon and eventide flights ( Airline: Jetlite )
Pricing of Air Tickets on the US Domestic Paths
As with any airliner, the operators on US domestic paths set monetary value sets for assorted classs, for illustration, L, M, N, O, etc. , of seats. These monetary values depend on the flexibleness given to a rider for cancellation, upgrading to following degree, refunds, etc. The air hoses allocate merely a certain figure of seats at each menu degree for each flight. The figure of seats allocated at each menu degree depends on many factors, such as the path involved, the clip of twelvemonth, the usual business/leisure rider dislocation on that path, the clip of twenty-four hours, etc. Airlines have stock list control sections to find how many seats are allocated at each menu on each flight. Since the clip span of the undertaking is limited, the analysis may non capture all the parametric quantities that play a function in the pricing of air tickets.
For analyzing the pricing tendencies on US domestic paths, three travel websites – Expedia, Travelocity and Orbitz – were used for roll uping the monetary values. The paths chosen for the survey include New York ( JFK International Airport ) to Los Angeles ( NYC – LA ) [ flight distance: 3,994 Kms ] , New York to Chicago ( NYC – Qi ) [ flight distance: 1,149 Kms ] , and New York to Pittsburgh ( NYC – Pit ) [ flight distance: 4,150 Kms ][ 4 ].
The air hoses sell on first-come first-serve footing. Passengers get cheaper menus by booking earlier. The monetary value therefore automatically responds to fluctuations in demand. From the information collected, it was observed that the volatility in the monetary values was higher anterior to 12 – 14 yearss from the day of the month of journey.
Comparing the airfares on three travel web sites considered, it was observed that the menus were more or less same on all of them. Some of the web sites ( for illustration, Travelocity ) besides have proviso for monetary value comparing functionalities. This indicates that the market in the US is really competitory.
The pricing of air tickets besides depends on the path. On the NYC – LA path, the demand is higher compared to NYC – Qi, or NYC – PIT path. Los Angeles being the hub of concern, international trade, amusement, civilization, media, manner, scientific discipline, engineering, and instruction in the US, the demand is much higher. This is the ground for a big figure of operators scheduling multiples flights on this path. Because of the high demand, the airfare is normally higher and there is a important motion in the monetary values compared to other paths. The flight distance of NYC – PIT path is higher by 161 Km than the NYC – LA path, but the menus are much less than the latter.
Similar sort of statement can be extended for NYC – CHI path. The flight distance of the path is 1,149 Kms, much less than the distance of 4,105 Kms for the NYC – PIT path. However, the monetary values on both the paths are really similar. There is more figure of participants offering non-stop flights on NYC – CHI path than the NYC – PIT path. This implies that the pricing on US domestic paths is governed by the demand and the figure of flights to vie on the path.
As can be observed from the charts below, higher volatility in monetary value motions is seen 12-14 yearss prior to the day of the month of travel. This volatility increases during the last 4-5 yearss depending on the handiness of seats. Companies and travel sites charge really high monetary values for the last few seats.
Figure 6: Monetary value comparing for three clip slots for New York ( JFK ) – Los Angeles path ( Delta Airlines )
Figure 7: Monetary value comparing across three travel web sites for New York ( JFK ) – Los Angeles forenoon flight ( Delta Airlines )
Figure 8: Monetary value motion for New York ( JFK ) – Los Angeles forenoon flight across air hoses
Comparison between Indian and US domestic Paths
The demand for air travel is ever higher in the US domestic paths than on the Indian domestic paths, although the latter is increasing at a fast rate. This demand is chiefly generated by concern travelers.
The monetary value motions on the US domestic paths are more volatile than the Indian paths. It is our understanding that there is deeper classification of seats based on sub-classes, compared to Indian air hoses. Therefore, there are multiple monetary value sets. The monetary value spread among the sets increases as the engagement of seats approaches the day of the month of travel. Higher volatility on US domestic paths can be due to higher figure of cancellations, which is rather common in instance of concern travel. Indian consumers show reluctance for cancellations.
Besides, since the demand for concern travel is really high in the US, the US air hoses charge extortionate monetary values if the figure of seats left is really low. In Indian context, the consumer is really monetary value witting. Indian client ever takes into consideration the monetary value and clip factors before taking a manner of transit. If the monetary values will be really high, Indian client will take other manner of transit such as train or route transit. Therefore, Indian air hose companies can harvest benefits of shorter supply merely to an extent.
Low Distance International Route from India
In order to analyze the monetary value volatility on international paths with regard to the chosen Indian domestic air hoses, Mumbai – Singapore, Chennai – Singapore and Bangalore – Singapore paths were chosen. Mumbai-Singapore and Chennai-Singapore paths are mature paths with a good sum of competition on these paths with Air India, Jet Airways, Kingfisher and Singapore Airlines being the chief participants. The monetary values on these paths are more or less changeless across the 15 and 30 yearss clip frame with a drastic addition in monetary values during last 4-5 yearss before the twenty-four hours of going. The ticket monetary values for all the participants are about comparable because there is stiff competition. The participants monetary value the tickets so as to cover their fringy cost of winging and operations. Towards the last 4-5 yearss to the day of the month of going, the addition in monetary value across all air hoses is sharper because they intend to take benefit of the last minute engagement by monetary value insensitive concern riders.
Singapore Airlines is merely air hose which has a direct flight on the Bangalore-Singapore path. Due to its monopoly on this path, the monetary values of tickets are rather high as compared to a similar distance path of Chennai-Singapore across all clip frames. The monopoly on this path helps Singapore Airlines to function the full demand and bear down really high premium.
A arrested development analysis was done for driving a pricing theoretical account for the paths. The parametric quantities considered for the analysis were air menu from different travel web sites ( including company websites ) , yearss to wing, clip of flight ( i.e. forenoon, afternoon, or flushing slot ) , flight distance, and type of flight ( whether a low cost bearer, or non ) . The variables ‘time of flight ‘ and ‘type of flight ‘ were treated as dummy variables.
The arrested development end product for the heavy traffic paths ( Delhi-Mumbai and Bangalore-Kolkata ) is given below:
Monetary value, P = 7415.83 – 100.28 ( Days to Fly ) + 1194.05 ( Morning ) + 1200.53 ( Afternoon ) – 2.43 ( Distance ) + 233.09 ( company website ) + 36.80 ( Yatra.com )
Similarly, a arrested development theoretical account was run for the light traffic ( Mumbai-Nagpur and Delhi-Indore ) path. The arrested development end product is given below:
Monetary value, P = 7550.48 – 64.9 ( Days to Fly ) + 664 ( Morning ) + 0 ( Afternoon ) -7.25 ( Distance ) + 649.84 ( Flight Type ) + 1083.266 ( company website ) + 1124.26 ( Yatra.com )
The two regressive theoretical accounts clearly justify our qualitative observations. The R2 values in scope of 0.4 for these two arrested developments make the regressive theoretical accounts dependable tools to demo the relationship between the monetary value and assorted other independent parametric quantities. The negative co-efficient of the independent variable ‘Days to Fly ‘ explains that as the yearss to wing come near by, it has a positive impact on the monetary value of the air ticket and hence, consequence in increasing it. The positive co-efficient of independent variable ‘Morning ‘ clearly indicates that the monetary value for forenoon flights is higher. Distance has negative impact on the monetary value ; this may be largely due the fact that the arrested development informations was non sufficient to demo the existent tendency on this parametric quantity. The positive co-efficient for ‘Flight Type ‘ indicates that the monetary values for air hoses like Indian, Kingfisher and Jet Airways are more as compared to air hoses like Indigo, Spice Jet, etc. It besides explains the fact that due to bulk covering many times the travel web sites are able to offer the air tickets at a better monetary value than the air hose web site in India.
Therefore, the regressive theoretical accounts are successful in explicating the relationship between monetary value and independent variables in a statistically important manner.
Impact of Competition on monetary value
As we could non capture the impact of competition in the regressive theoretical accounts, we developed a correlativity matrix for this. A high value of correlativity of -0.7219 between monetary value and competition clearly indicates that monetary value of air tickets decreases with addition in competition on the path, whereas it increases significantly when there is monopoly sort of state of affairs on the path.
Comparison of monetary value per unit kilometer for low and high traffic paths
Dayss to wing
Price per Km ( RS )
Figure 6: Comparison of monetary value per unit Km for low and high traffic paths
It is observed that monetary value per kilometer on Indian domestic heavy traffic paths is more as compared to Indian domestic visible radiation traffic paths. The ground for this is that on low traffic paths people tend to go more by train and route. So as to promote the people to exchange to air travel, the air hoses charge the monetary values low as compared to more full-blown air paths.
Dayss to Fly
Impact of timeslot on the norm of monetary values of air tickets
Air menu ( Rs )
Figure 7: Impact of timeslot on the norm of monetary values of air tickets
On heavy traffic Indian domestic paths, there is demand for air tickets at all the times of the twenty-four hours, so the monetary values do non change much across assorted clip slots of the twenty-four hours. On the other manus, for low traffic Indian domestic paths, there is more demand for air tickets during the forenoon and flushing slots and less demand during the afternoon slot. Hence, the monetary values are higher during forenoon and flushing slots of the twenty-four hours, whereas it is less during afternoon slot.
Price Volatility Index ( PVI )
The monetary value volatility index has been defined as the per centum alteration in monetary value of air ticket today as compared to old entering twenty-four hours. It is given by the expression:
PVI = ( Pt-Pt-1 ) / Pt-1
where Platinum: Today ‘s air ticket monetary value
Pt-1: Monetary value of air ticket on old twenty-four hours
It is observed that the monetary value volatility on US domestic paths is more as compared to Indian domestic paths. The chief ground for this is attributed to the existent clip reacting air ticket pricing mechanism which responds instantly to alter in demand rates in US as compared to Indian pricing systems which updates monetary values merely at the terminal of the twenty-four hours.
Figure 8: Monetary value Volatility Index ( PVI ) across India and US domestic paths
Scope for Further Research
It is advised that a larger clip frame is taken for informations aggregation. The ideal state of affairs would be to take the ‘date of journey ‘ and get down entering the monetary value points from the twenty-four hours engagements are opened. Our clip frame for informations aggregation was one month, and the engagements normally unfastened before three months from the day of the month of journey.
Another restraint due to shorter clip frame is that non all the parametric quantities ( such as holidaies, conditions, etc. ) can be included in the survey and hence, their impact can non be gauged.
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The Indian Airline Industry in 2008 by Rishikesha.T. Krishnan
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