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United Airlines

Different Prices for Different Passengers, Says United’s Kirby

Different Prices for Different Passengers, Says United’s Kirby
Jackie Reddy

Speaking at the Morgan Stanley 6th Annual Laguna Conference earlier this week, Kirby was forthright in his views on market segmentation. He also believes that carriers should be taking a greater share of revenues and doesn’t accept that competitiveness within the market brings about cheaper prices.

When it comes to air fares, Scott Kirby, the president of United Airlines, believes that different passengers should be paying different prices. Kirby aired his views on passenger pricing, segmentation and revenue earlier this week at the Morgan Stanley 6th Annual Laguna Conference.

According to BoardingArea‘s Gary Leff, Kirby’s market segmentation strategy is all about increasing revenue. Based on this logic, “his segmentation strategy – both in terms of products but also fare types for each product — is about charging different prices to different customers … based on each customer’s willingness to pay.”

Speaking of revenue, Kirby was unabashed in his views. He also believes that it is perfectly reasonable for carriers to claim a greater amount of total revenue. What’s more, according to the outlet, “He rejects the notion that in a competitive industry price should fall towards marginal cost.”

Making his observations, Scott was quoted as saying that “in the last 30 years airline revenue as a percentage or GDP has gone to about .6 from about 1.2 per cent.” Therefore, Kirby believes that the price of airfare should, in fact, be doubled and that, at present, “we are under pricing our product by 50 per cent.”

For carriers looking to maximize revenue, he also has some advice. Cost, Kirby believes, can be used to predict airline revenue due to the fact that “everyone prices to costs.” These prices, as the outlet observes, are initially set by low-cost airlines, with the larger carriers closely following suit.

Taking a critical look at Kirby’s opinions, Leff writes, “What’s missing in this analysis is differentiating United’s product. Low cost carriers set price because consumers see them as selling largely the same thing as major airlines. When airlines engage in product segmentation they’re trying to be all things to all customers.”

[Photo: Shutterstock]

View Comments (6)

6 Comments

  1. formeraa

    September 14, 2018 at 2:55 pm

    Kirby started out in pricing and revenue management. So, I totally understand his perspective. I do believe that the larger, network carriers have a “better” product. They just have not communicated it properly nor have capitalized on it. The network carriers inevitably have more frequent flights, better irregular operations recovery, serve more destinations directly or via alliances. All of these should be used for competitive advantage.

    Those who lament the “olden days” of airline travel are bound to be disappointed.

  2. PHL

    September 14, 2018 at 6:13 pm

    Scott, you’re not under pricing your product by 50%. Compared to other airlines, your product doesn’t really differentiate itself. When you can offer a product that is tangibly BETTER than the competition, you might be able to charge a small premium to your frequent travelers who value certain services and perks. But at the end of the day, 90% of your customers are shopping on price to take their family of 4 on a 2 hour flight from point A to point B, so until you are the only airline available on a given routing you will have to continue to match the lowest prices to fill your planes.

  3. Centurion

    September 14, 2018 at 7:39 pm

    Keep extracting money from common people by adding more seats and more hidden fees and you can expect more violence that the public pays for thru law enforcement. The airlines do not pay the same taxes on those bag fees and seat fees so it flows down to the profit line much quicker. Its sad but we are all are going to be pay for airline greed until something really bad happens

  4. jonsg

    September 15, 2018 at 11:53 am

    “United Airlines…beating customers, not prices!”

  5. emcampbe

    September 15, 2018 at 2:53 pm

    I’ll be short here – there’s a thread in the UA forum on this. But the my main point is it’s silly to compare the price of airfare based on percentage of GDP, since GDP isn’t, nor should be, stagnant.

    If he thinks that airfare should be double – that’s ok – but basing it on % of GDP isn’t. And note that if you think you can double the price – people are going to expect more. You can’t throw an extra seat in each row, take away meals on flights, etc. if you want to double the price. You need to throw people a bone. I realize there is inflation, etc., but a big increase in price, I expect something better in return.

  6. horseymike

    September 16, 2018 at 5:20 am

    like to see an airline that provides a comfortable roomy seat to all passengers on the plane, price it accordingly, less than first class and more than economy coach. It would be interesting.

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