Airlines Face Tough Pricing and Payload Decisions

According to a recent report by Wellington Airport operator Infratil, “domestic aircraft flying into Wellington airport were on average three quarters full in July even though there were more seats available”. This comes hot on the tail of other recent announcements by leading NZ airline carrier Air New Zealand that pricing may go up again – for a fourth time in recent months.

Decisions facing airlines are as not clear cut as most people believe. The obvious response from passengers is that it is best for the airline to lower the price of seats as ‘last minute’ type deals, in an effort to get 100% payload. However, the calculations are not that simple, for example:

  • Once a population becomes aware of such strategies – passengers tend to hold back on purchasing tickets until closer to the departure date; the impact on sales volumes of full price fares can significantly impact profitability, and can lead to overall increase in fares
  • Ticket fraud also needs to be closely managed – and without the visibility provided by business intelligence can amount to millions of dollars per year in lost revenues
  • The rapidly rising cost of fuel and passenger handling services must be factored into the equation – there is a point at which the additional profit from low fares is insufficient to cover the additional payload.

Airline scheduling and pricing profitability are key areas of business intelligence for airlines and other transport related industries.

Airline operators will find detailed insight into how business intelligence is used in the airline industry in my soon to be launched [September 2008] book “The Logical Organization: A strategic guide to driving corporate performance using business intelligence” The book will be available on this site and on

Written by: Gail La Grouw

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