Originally Posted by BA or bust
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^ It is called the doom-loop spiral. Did an MBA case study like this a few years ago (on the perils of activity based costing). The ABC widget company's bean counters work out that blue widgets are unprofitable because of high costs divided by current volumes of sales. So price jacked up to recover costs. Volume falls, more calculations, price goes up again. And so on and so on... Meanwhile down the road XYZ widget company are picking up the volume of sales that ABC is losing. Their bean counters do the numbers and conclude they can afford to cut prices since profits are good. XYZ gets even more volume... so ABC jack prices again to stem the losses... etc. etc. etc.
It would be nice to think that you don't actually need an MBA to work out that this would be the obvious outcome of such a strategy. However, in practice it seems that you can have an entire corporate strategy division and still not work out the obvious ...
I'm still waiting for someone at BMI to explain how getting rid of all your full-fare business class passengers on most of your routes, to replace them with £1 specials sold through the bmibaby website, actually increases your revenues.
I'm also a little surprised that Ryanair has not yet seen the benefit of charging pax an optional £20 per flight surcharge to use a fast track check-in desk, a priority boarding pass and get a fast track security sticker. But I'm sure there's logic somewhere.