Is AC profiteering?
May 20, 2011, 5:15 am
#1
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Is AC profiteering?
In another thread it was shown AC raises prices dramatically for end of June. (“the jump was significant in terms of the base fare ... from $859.00 to all of a sudden $1259-$1640.00”). It was justified by stating “Because the demand during those last 2 weeks is a big jump as well? Schools year finish, lots of kids going back home etc? Last 2 weeks of Jun is high season for HKG (Jun 22 - Jul 1). Fares don't stay there same year round.”
So they raised the price not because of some business cost factor, but because they could gouge the customer because of increased demand of kids wanting to home after the school year.. So would AC raise the price of water and food before a hurricane? The cost of sandbags when the demand increases before a flood? Maybe those are too emergency-related examples. How about more predicable and annual. Does Toys R Us raise prices of toys before Christmas? Does Zellers raise prices of school supplies before September? Do restaurants raise their prices for Mothers Day? Does Shoppers Drug Mart raise the price of flu medicines before the flu season?
Profiteering is “to make an unreasonable profit not justified by cost or risk” (Wiki). So there is no increased costs or risk for end of June just an increased demand by students wanting to go home. Is AC profiteering?
So they raised the price not because of some business cost factor, but because they could gouge the customer because of increased demand of kids wanting to home after the school year.. So would AC raise the price of water and food before a hurricane? The cost of sandbags when the demand increases before a flood? Maybe those are too emergency-related examples. How about more predicable and annual. Does Toys R Us raise prices of toys before Christmas? Does Zellers raise prices of school supplies before September? Do restaurants raise their prices for Mothers Day? Does Shoppers Drug Mart raise the price of flu medicines before the flu season?
Profiteering is “to make an unreasonable profit not justified by cost or risk” (Wiki). So there is no increased costs or risk for end of June just an increased demand by students wanting to go home. Is AC profiteering?
May 20, 2011, 5:21 am
#2
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pretty much anything in travel is based on seasonality....be it from air to hotel to car rentals. Days of the week is also a factor. ie In Vegas hotels are more expensive on Fridays and Saturdays than any other day of the week.
May 20, 2011, 5:27 am
#3
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Since airplanes began to carry passengers, there have been high and low seasons which correspond with travel patterns and vacation periods. For Europe and Asia, the high season runs through the Northern Hemisphere summer (and vice versa in the Southern Hemisphere). For the Caribbean/Mexico and south, the high season has been the winter. There is nothing wrong with a company/industry attempting to extract the maximum dollar from a scarce product when demand is highest. If you want to travel when others also want to travel, and there are a limited number of seats on sale, then you should be prepared to pay a premium. If a kid, as you put it, (or his parents) can afford to go to school in Canada, they can afford the air fare to get back home. S/he doesn't need AC (or CX) to subsidize his or her return travel!
I think it is wrong to base your perception on the trough instead of the peak. Your $900 fare is based on a period of low demand and surplus inventory, and thus the fare is indeed lower. But the norm is closer to a midway point between the high fare of $1500 and the lower fare...likely in the $1200 to $1300 range. (My sweet point is about $1000 a/i for destinations in China and I have flexibility in when I want to travel there.)
It's not that you can't get to HKG by any other means. There are two nonstop carriers offering a half dozen flights a day from Canada, and dozens of other carriers that will get you there with a single connection, so competition is also a factor in pricing but there are competing demands too on the competition.
I think it is wrong to base your perception on the trough instead of the peak. Your $900 fare is based on a period of low demand and surplus inventory, and thus the fare is indeed lower. But the norm is closer to a midway point between the high fare of $1500 and the lower fare...likely in the $1200 to $1300 range. (My sweet point is about $1000 a/i for destinations in China and I have flexibility in when I want to travel there.)
It's not that you can't get to HKG by any other means. There are two nonstop carriers offering a half dozen flights a day from Canada, and dozens of other carriers that will get you there with a single connection, so competition is also a factor in pricing but there are competing demands too on the competition.
Last edited by Shareholder; May 20, 2011 at 5:35 am
May 20, 2011, 5:33 am
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And a 2 week period when students return to China is scarcely a “season”... it is a surge in demand on a specific route being profiteered by AC?
Last edited by bingocallerb22; May 20, 2011 at 6:06 am
May 20, 2011, 6:22 am
#5
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Well, no, demand for water and food is highest before a hurricane yet it is quite wrong for a company/industry to extract maximum dollar then.
And a 2 week period when students return to China is scarcely a “season”... it is a surge in demand on a specific route being profiteered by AC?
And a 2 week period when students return to China is scarcely a “season”... it is a surge in demand on a specific route being profiteered by AC?
May 20, 2011, 7:22 am
#7
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No, the definition of profiteering is to make a profit by methods considered unethical and adjusting prices to match supply & demand cycles is hardly that. I'm guessing you've never bought flowers on Valentine's Day at double or triple the price to be had only a few days later. There are many other examples of the same market forces at work but IMHO it's hyperbole to call it profiteering.
May 20, 2011, 8:10 am
#8
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No, the definition of profiteering is to make a profit by methods considered unethical and adjusting prices to match supply & demand cycles is hardly that. I'm guessing you've never bought flowers on Valentine's Day at double or triple the price to be had only a few days later. There are many other examples of the same market forces at work but IMHO it's hyperbole to call it profiteering.
But I've said enough, sorry, I'll keep quiet and let others have their say. Cheers.
May 20, 2011, 8:27 am
#9
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I'm with tcook on this. Flowers on Feb 14 are many times more expensive than they are on Feb 15. Little chocolate bars are generally cheaper on Nov 1 then on Oct 31.
In a Capitalist society it's not uncommon to see prices fluctuate and sometimes "adjust" upwards by orders of magnitude just because of perceived demand. OTOH, it's quite common to see prices held steady just because that's what consumers expect. The price of an iPad for example never changes. And as pointed out, prices for toys before Xmas don't seem to increase.
There are elements of AC's business practice that I do think come close to profiteering (fuel surcharge) but on the whole I believe that what AC is doing is not illegal nor is it necessarily immoral. It is certainly opportunistic, but again that's the nature of the Capitalist society we live in.
In a Capitalist society it's not uncommon to see prices fluctuate and sometimes "adjust" upwards by orders of magnitude just because of perceived demand. OTOH, it's quite common to see prices held steady just because that's what consumers expect. The price of an iPad for example never changes. And as pointed out, prices for toys before Xmas don't seem to increase.
There are elements of AC's business practice that I do think come close to profiteering (fuel surcharge) but on the whole I believe that what AC is doing is not illegal nor is it necessarily immoral. It is certainly opportunistic, but again that's the nature of the Capitalist society we live in.
May 20, 2011, 8:40 am
#10
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Profiteering implies AC is profitable, have you seen there financial statements? They ain't Rollin in cash.
Profiteering implies AC is profitable, have you seen there financial statements? They ain't Rollin in cash.
May 20, 2011, 8:44 am
#11
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Tcook, of course you know your definition differs from Wiki, you might want to go there and correct them, it is an open dictionary. You definition sounds more like price gouging, illegal in may places. Don't think AC is doing anything illegal so I chose the softer word profiteering instead of price gouging. But not matter to me, any word will do. And yes, raising prices of roses for Valentines IMHO is profiteering (or whatever word you want)... two wrongs don't make a right. Profiteering exists, so I guess the question is where does profiteering begin in a normal supply and demand equation? Raising food and water prices before a hurricane is clearly wrong, maybe raising prices on one select route for a two week period because students want to get home might be also.
But I've said enough, sorry, I'll keep quiet and let others have their say. Cheers.
But I've said enough, sorry, I'll keep quiet and let others have their say. Cheers.
http://en.wikipedia.org/wiki/Profiteering_(business)
Profiteering is a pejorative term for the act of making a profit by methods considered unethical.
To me my view of profiteering making money off someone else's misfortune and this case doesn't even approach that in any way shape or form as the laws of supply and demand and relative value are nothing new and are used by all of us everyday whether we like it or not.
The difference between profiteering and profits in a supply & demand equation is choice; consumers can't chose not to live without food & water after a natural disaster but flyers are always free not to fly if the price is too high for their liking.
Last edited by tcook052; May 20, 2011 at 9:01 am
May 20, 2011, 9:04 am
#12
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But not for the reasons you outline
(And as another poster pointed out, they're not even particularly good at it if you go back to the root of the word and look for PROFIT.
May 20, 2011, 9:06 am
#13
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The OP is making a classic error in assuming that suppliers of goods should use a "cost plus" methodology in determining the price at which they would sell a product. That simply is not how companies who are "good" at pricing do things. The price gets established by the marketplace - simple supply and demand.
AC and other airlines know that there will be high demand at the end of June to HKG due to returning students, so they raise the price. That does two things:
It allows them to earn more money on the route at that time, which will make up for the losses they incur with emptier planes with lower average revenue per seat flown at times of low demand and given that there is likely more demand than supply at that time.
The more price sensitive travellers will leave early or late to avoid the higher fare, freeing up seats for those people who value their travel dates more highly - spreading out demand.
Note: the same thing happens for travel anywhere at Christmas and in North america during the summer.
I don't cconsider this type of behaviour to be "profiteering" or "price gouging".
AC and other airlines know that there will be high demand at the end of June to HKG due to returning students, so they raise the price. That does two things:
It allows them to earn more money on the route at that time, which will make up for the losses they incur with emptier planes with lower average revenue per seat flown at times of low demand and given that there is likely more demand than supply at that time.
The more price sensitive travellers will leave early or late to avoid the higher fare, freeing up seats for those people who value their travel dates more highly - spreading out demand.
Note: the same thing happens for travel anywhere at Christmas and in North america during the summer.
I don't cconsider this type of behaviour to be "profiteering" or "price gouging".
May 20, 2011, 9:08 am
#14
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Airlines do not "raise" prices, they have Full (AKA Normal) Fares that are applicable at any time ($11 000 in Economy on the YTO-HKG route) and then they provide variable-level discounts off those Fares (with discounted Fares ranging from ~$1 000 to $6 000):
[KVS Availability Tool 6.1.5/Diamond - Sabre: Fares/TVN/CA-STD]
[..]
[KVS Availability Tool 6.1.5/Diamond - Sabre: Fares/DotRes/US]
[KVS Availability Tool 6.1.5/Diamond - Sabre: Fares/TVN/CA-STD]
Code:
YTO Toronto Metro ON CA = YYZ YTZ YBZ
HKG Hong Kong Intl HK [VHHH]
R/T May 2011 - Apr 2012
Carrier From To Fare Cur AdvanceP Min Max Fare Basis/TD | Travel Period
--------- ------ ---- -------- ---- -------- --- --- -----------------------------
AC YTO HKG 1035 USD *** 6M SLCG
AC YTO HKG 1153 USD *** 6M WLCG
AC YTO HKG 1189 USD *** 6M SKCG
AC YTO HKG 1256 USD *** 6M VLXCG
AC YTO HKG 1307 USD *** 6M WKCG
AC YTO HKG 1318 USD *** 6M VLWCG
AC YTO HKG 1379 USD *** 12M QLXCG
AC YTO HKG 1410 USD *** 6M VKXCG
AC YTO HKG 1461 USD *** 12M QLWCG
AC YTO HKG 1472 USD *** 6M VKWCG
AC YTO HKG 1533 USD *** 12M QKXCG
AC YTO HKG 1533 USD *** 12M HLXCG
AC YTO HKG 1549 USD *** 6M SHCG
AC YTO HKG 1575 USD *** 6M WLXASIA
AC YTO HKG 1615 USD *** 12M QKWCG
AC YTO HKG 1615 USD *** 12M HLWCG
AC YTO HKG 1667 USD *** 6M WHCG
AC YTO HKG 1670 USD *** 6M VLXASIA
AC YTO HKG 1678 USD *** 6M WLWASIA
AC YTO HKG 1687 USD *** 12M HKXCG
AC YTO HKG 1732 USD *** 6M WKXASIA
AC YTO HKG 1769 USD *** 6M VHXCG
AC YTO HKG 1769 USD *** 12M HKWCG
AC YTO HKG 1772 USD *** 6M VLWASIA
AC YTO HKG 1790 USD *** 12M ULXCG
AC YTO HKG 1822 USD *** 6M SHXCGT
AC YTO HKG 1827 USD *** 6M VKXASIA
AC YTO HKG 1831 USD *** 6M VHWCG
AC YTO HKG 1835 USD *** 6M WKWASIA
AC YTO HKG 1847 USD *** 6M QLXASIA
AC YTO HKG 1892 USD *** 12M ULWCG
AC YTO HKG 1892 USD *** 12M QHXCG
AC YTO HKG 1924 USD *** 6M SHWCGT
AC YTO HKG 1929 USD *** 6M VKWASIA
AC YTO HKG 1944 USD *** 12M UKXCG
AC YTO HKG 1950 USD *** 6M QLWASIA
[KVS Availability Tool 6.1.5/Diamond - Sabre: Fares/DotRes/US]
Code:
YTO Toronto Metro ON CA = YYZ YTZ YBZ
HKG Hong Kong Intl HK [VHHH]
R/T 01 Jun 2011 | 15 Jun 2011 | Economy
Carrier From To Fare Cur Fare Basis/TD
--------- ------ ---- -------- ---- -------- --- -- -------------
AC YTO HKG 1990 USD QKXASIA
AC YTO HKG 2402 USD MKXCG
AC YTO HKG 2452 USD HKXASIA
AC YTO HKG 6629 USD BXCG
AC YTO HKG 6856 USD YXCG
AC YTO HKG 11100 USD YFFEO
May 20, 2011, 9:12 am
#15
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CLIFF NOTES:
There is no such thing as gouging or profiteering !!
Long version:
Raising prices on necessities like food water and gasoline after a hurricane or other disaster may be called price gouging by you and others.
However, I submit that it is a rational response to scarce goods.
DURING A DISASTER:
Hotel rooms SHOULD be increased in price as much as it takes to maximize revenue for the innkeeper.
This also is best for the society. It forces people to choose:
-should they share rooms with another couple/family?
-should they make alternate plans?
-it keeps hotel rooms AVAILABLE
Gas prices SHOULD be outrageous:
-it forces those with gas not to stockpile unnecessarily
-it forces everyone to economize
Food prices SHOULD be outrageous for the same reasons.
Calling it profiteering and greedy and gouging is absurd and only leads to SHORTAGES and more scarcity.
The free market allocates goods better than SOCIALISM.
Greed is GOOD.
So obviously I believe that:
Similarly, airlines SHOULD be greedy and raise prices to whatever they think will maximize revenue. If they raise too high and anger enough people like you, then people won't fly them as much.
ECONOMICS 101.
I love Canada by the way. Just way too far to the left for me politically (Ontario is my reference).
There is no such thing as gouging or profiteering !!
Long version:
Raising prices on necessities like food water and gasoline after a hurricane or other disaster may be called price gouging by you and others.
However, I submit that it is a rational response to scarce goods.
DURING A DISASTER:
Hotel rooms SHOULD be increased in price as much as it takes to maximize revenue for the innkeeper.
This also is best for the society. It forces people to choose:
-should they share rooms with another couple/family?
-should they make alternate plans?
-it keeps hotel rooms AVAILABLE
Gas prices SHOULD be outrageous:
-it forces those with gas not to stockpile unnecessarily
-it forces everyone to economize
Food prices SHOULD be outrageous for the same reasons.
Calling it profiteering and greedy and gouging is absurd and only leads to SHORTAGES and more scarcity.
The free market allocates goods better than SOCIALISM.
Greed is GOOD.
So obviously I believe that:
Similarly, airlines SHOULD be greedy and raise prices to whatever they think will maximize revenue. If they raise too high and anger enough people like you, then people won't fly them as much.
ECONOMICS 101.
I love Canada by the way. Just way too far to the left for me politically (Ontario is my reference).