Published at Thursday, March 28th, 2019 - 06:38:55 AM. Type of airline. By Arnt Meyer.
A complicating factor is that of origin-destination control ( O&D control ). Someone purchasing a ticket from Melbourne to Sydney (as an example) for A$200 is competing with someone else who wants to fly Melbourne to Los Angeles through Sydney on the same flight and who is willing to pay A$1400. Should the airline prefer the $1400 passenger or the $200 passenger plus a possible Sydney-Los Angeles passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing decisions daily.
Major airlines dominated their routes through aggressive pricing and additional capacity offerings often swamping new start-ups. In the place of high barriers to entry imposed by regulation the major airlines implemented an equally high barrier called loss leader pricing. 37 In this strategy an already established and dominant airline stomps out its competition by lowering airfares on specific routes below the cost of operating on it choking out any chance a start-up airline may have. The industry side effect is an overall drop in revenue and service quality. 38 Since deregulation in 1978 the average domestic ticket price has dropped by 40%. 39 So has airline employee pay. By incurring massive losses the airlines of the USA now rely upon a scourge of cyclical Chapter 11 bankruptcy proceedings to continue doing business. 40 America West Airlines (which has since merged with US Airways) remained a significant survivor from this new entrant era as dozens even hundreds have gone under.
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