An examination of ongoing trends in airline ancillary revenues

The airline industry seems permanently embedded in producing thin margins and continuously combatting downward pressure on yields. To perpetuate the problem, the industry remains eclipsed with high cost structures and low barriers to entry. However, a new sizzling concept continues to counterbalance these effects in the form of ancillary revenues. Globally, these revenues have increased by 121% from 2010 to 2014 – and the trend is set to continue as carriers are quickly implementing structural changes to accommodate these revenues streams. This paper examines the performance of the two core classifications of ancillary revenues, which are unbundled products and commission based income. It also investigates the willingness of passengers to pay for these services together with what type of ancillary items are acceptable at a particular price point. The study found that passengers value a narrow range of perceived ‘necessity’ products and services such as food and drink, checked baggage and seat assignment as opposed to perceived ‘optional’ unbundled or commission based products/services. It also found significant differences in WTP for specific ancillary services based on carrier type (FSC/LCC/Charter), length of flight (long and short haul) and journey purpose (business, leisure, VFR)

Loyalty Programme Applications in Indian Service Industry

Retaining all customers would not be a good idea for any business. In contrast, allowing the profitable customers to leave would be an even worse idea. Consequently the real solution rests in knowing the value of each customer and then focusing loyalty efforts on those customers. Customers are more likely to be loyal to a group of brands than to a single brand. This is particularly true if the chosen brand is the category leader and costs more. In contrast to the one – brand- for – life mentality of the past, today’s consumers are blatant in their divided loyalties, for their own safety and pleasure. The conceptual framework presented helps to understand the evolving logic of loyalty programs and process of implementing the same. Applications in different service industry for building and sustaining loyalty provide an overview of the status of such programmes.

Comparison of Airline Co-Branded Credit Card Programs via Frequent Flyer Money Saver Analysis for Full-Service U.S. Carriers

Although airline alliances work fairly effectively for paid flight segments, passengers who want to redeem frequent flyer miles often encounter difficulties. Sometimes airlines demand an extensive amount of air miles to book requests for award seats to not only their partner airline customers but also their own customers. Furthermore, while the airline co-branded credit card award mile earnings and redemption rates fluctuate significantly between different airlines, passengers are not well informed about which airline co-branded credit card requires the minimum amount of credit card expenditure to fly with an award ticket to their desired travel destination. A more useful and practical system is necessary to fulfill passenger’s expectations to overcome the problems associated with earning and redeeming frequent flyer miles on flights via airline co-branded credit cards. Grounded in consumerism theory, this research acknowledges that buyers, relative to sellers, often lack important information as they seek to make purchases. As such, efforts to help consumers make more informed choices benefit not only consumers but also the wider marketplace. In the first part of this research, a quantitative model called the frequent flyer money saver (FFMS) analysis was used to compare the official credit cards offered by the leading carriers’ loyalty programs operating in the United States via simulation. In the second part, an exploratory structural equation model (SEM) was used to determine the FFMS ratio’s factors based on the route characteristics. According to the results, United Airlines outperformed other airlines in terms of FFMS ratio distribution, whereas Hawaiian Airlines held the lowest position. Regarding the SEM results, the route characteristics including market share and number of passengers carried were negatively associated with the FFMS ratio. Based on this dissertation’s findings, when compared with Hawaiian and Alaska Airlines, the members of big three airlines (Delta, American and United) offer significantly higher savings in aggregate to their customers with respect to redeeming miles for an award ticket. Tentative findings also suggest a potential relationship between route characteristics and the FFMS ratio that should be further explored

The Rule of Law as a Law of Standards: Interpreting the Internal Revenue Code

This Essay seeks to demonstrate that the interpretive use of standards in applying provisions of the Internal Revenue Code is not inconsistent with the rule of law. Part I discusses the relationship between rules and the rule of law and explains why we think so many tax scholars are drawn to a view of the tax law as consisting primarily of rules. We then demonstrate that the definition of income is properly understood as a standard. Part II addresses the descriptive dimension of this claim, summarizing and expanding our previous discussion of the definition of income to determine whether the term is susceptible to construction as a rule. We show that even a brief trip through some of the litigation required to determine whether certain items are income leads to the conclusion that the definition of income is not a rule. Part III addresses the normative dimension of our claim. There, we tease out the functions served by interpreting income as a standard and question where the interpretive authority lies with respect to the Code in order to argue that income ought to be treated as a standard. Part IV turns to several examples of what Professor Lawrence Zelenak regards as either a “disregard” or an “underenforcement” of the law to clarify our understanding of interpretation. We then conclude by observing that the Code does not “read itself”: Deciding whether a provision is itself a rule or a standard is itself an act of interpretation. Moreover, interpreting a provision as a standard is fully consistent with the rule of law

Strategic Alliances in the Global Airline Industry

Strategic alliances are common to any industry. Their presence is felt quite significantly in the airline industry. Starting in the US in 1978 deregulation of airline industry has since brought about sea changes in functioning of the industry. This paper attempts to understand the developments and strategic alliances that have occurred in the airline industry since deregulation. These strategic alliances exist in various forms and differ widely in scope and no consensus on classification was found. The advantages and disadvantages of strategic alliances with respect to the airline industry have been discussed. It is felt that the industry is getting increasingly concentrated. However, no conclusive remarks can be made about consumer welfare.

Global strategic alliances in scheduled air transport - implications for competition policy

In international aviation, global strategic alliances (GSAs) have in recent years become an important form of cooperation between airlines. This cooperation has hit the antitrust nerve of the European Commission. Initially, the Commission had attempted to constrain both the market share of the major alliances in transatlantic air transport and their access to major European hubs (London and Frankfurt). The airlines maintain that they need alliances as an inevitable means to adapt to the changing environment in increasingly liberalized and globalized air transport markets in order to remain competitive and to fully realize their growth potential. The final verdict by the Commission will be published soon. Though the existing airline alliances are not stable enough to threaten competition and the openness of airline markets on a global scale, certain hubs or even city pairs might be in danger of being dominated by an individual alliance. This is all the more so as alliances in aviation — contrary to, e.g., strategic R&D alliances in manufacturing — are based on cooperating in a core area of the participants' commercial activities, which might end in collusion. On the other hand, alliances may indeed be regarded as an appropriate tool for internationally active firms to remain competitive. For analyzing alliances' impact on competition, networks seem to be more appropriate than city pairs. On the networks level, complementary alliances usually improve overall welfare via lower fares in all submarkets, whereas parallel alliances tend to result in higher prices in the former parallel markets and lower in other markets due to network spillover effects. Since GSAs in aviation are both of a complementary and a parallel nature, no clear-cut a priori position for or against alliances can be maintained based on conventional antitrust reasoning. From the new institutional economics perspective, alliances are ambiguous as well, because this perspective highlights the efficiency objectives of the participating carriers as well as the potential for collusion and opportunistic behavior. Empirical evidence on the market shares and pricing behavior of alliances and their members does not as yet reflect an increasing threat to competition by these forms of cooperation. But it should be noted that alliances appear to be gaining greater stability over time and that the number of independent competitors is shrinking. These independent competitors contribute much to the dynamics of the competitive process. If their vital role for competition were to be restricted, GSAs in airtransport might prove to be detrimental in the long run. The European Commission is right to be on the alert about GSAs having potentially detrimental effects on competition. However, the Commission should avoid overreacting in its zeal to keep markets open (contestable). It should be borne in mind that market access on transatlantic as well as on most other international air transport routes is still governed by the administrative provisions of intergovernmental bilateral agreements and not by market forces. Therefore, the rrtore relevant question for aviation.policy would be whether competition on the North Atlantic routes could be best maintained by scrapping the bilateral agreements and embarking on a truly liberal open skies aviation agreement between the EU, the United States, and other countries. --

A Conceptual Framework for Valuating Airline Frequent Flyer Program Miles

Frequent flyer programs of airlines have gradually evolved into a multi-billion dollar business over the years. Valuing frequent flyer program miles accurately and fairly has its practical implications both for airlines and members of frequent flyer programs. As a ground-breaking academic study dedicated to airline loyalty programs, this study aims to build a conceptual framework to guide the valuation of miles. Through comparing required miles for different award types with their equivalent cash prices, this study has successfully addressed the purchasing power of AAdvantage miles of American Airlines when they are used for award redemption. Not only can this study be used to assist frequent flyer program members to maximize the utility of their miles assets, it also has the potential of becoming the theoretical foundation to build an industry-wide benchmark for valuing miles. Findings of this study could be significant and meaningful to multiple stakeholders, including consumers, airlines and their business partners, investors, financial institutions and taxation departments

The Effect Of Dynamic Pricing And Revenue Management On Agent Behavior And Customer Perception

My dissertation extends the traditional fields of revenue management and dynamic pricing to newer markets. Specifically, my first two chapters explore the revenue management strategies and their impacts in the airline industry in the presence of loyalty programs. The first chapter solves the optimal revenue management algorithms when the firm is rewarding frequent customers with free capacity. Using a game-theoretic Littlewood model, we show that limiting award capacity can increase profits by enhancing loyalty award values; airlines can benefit from transitioning from mileage-based programs to revenue-based programs by simplifying its revenue management algorithm and allowing 100% award availability. The second chapter investigates customers\u27 evaluations of loyalty program points. By fitting a Multinomial Logit model on DB1B data set, we calibrate customers\u27 valuations for loyalty points at the issuance and redemption. We have two main conclusions: consumers are rational about the value of miles at issuance, but underestimate and overspend miles at redemption; higher award availability and more award choices lead to higher values of Loyalty points. Finally, my third chapter examines the impact of dynamic pricing in the ride-sharing economy. By using actual Uber pricing and partner data, the paper shows that ride-sharing platforms can efficiently signal market conditions, stimulate desirable agents\u27 behavior, and reduce marketplace frictions through dynamic pricing

The perceived value of frequent flyer program benefits among Australian travelers

Understanding the perceived value of frequent flyer program benefits is crucial for commercial operations of airlines. This study aimed to investigate if travelers value various benefits provided by airlines and if such valuation correlates with certain characteristics of travelers. Through a scenario-based questionnaire it was confirmed that travelers do value extra and premium benefits offered by airlines, and such valuation increases along with the distance of route. It was also been found that top-tier members were willing to make a much higher offer for the same benefits on long-haul international route than members of lower status, but such difference in offer was not statistically significant on other routes. Results of this study could fulfill the gap of the current literature on frequent flyer programs, and offer practical guidance for airlines to generate higher revenues though customized pricing and targeted sales promotion to elite frequent flyers