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.”