A-La-Carte Pricing in the Airline Industry - Graduate Student ...

entrepreneurial awareness that a multi-part pricing arrangement could be used to raise revenuesand more efficiently differentiate customers based on their willingness to pay for certainancillary services.Some discussion took place about the existence of a first-mover problem by which firmsin the industry were reluctant to bear potentially uncertain costs of unbundling and reluctant tooffer ancillary services for fear that the costs would outweigh the benefits. Interviewees pointedto relatively long lags in firms deciding whether they would institute bag fees, and the carrier‘sown in-depth analysis to determine whether charging bag fees would be worthwhile. In a similarvein, interviews touched upon the competitive nature of the ancillary revenue trend. Participantsalso mentioned that ancillary revenues could help provide another dimension upon which airlinescan compete and reduce their position as providers of a commodity-type product.Interviewees agreed that unbundling and new a-la-carte products have paid off for theairline, exceeding expectations in many areas. Nonetheless, multiple discussions pointed topotential challenges to offer products and services that fit within the airline‘s brand and providesomething that is value-added for customers. Some interviewees also said that bag fees lead to amore equitable fee structure by which customers who do not check bags no longer subsidize thecosts attributed to those who do check bags. While such claim implies that baggage fees (andother a-la-carte initiatives) put downward pressure on fares, a number of interviewees doubtedthat this was the case, likely due to the lack of a visible drop in fares following unbundling. Twointerviewees said, however, that ancillary revenues would likely drive down base air fares in thefuture.Multiple interviewees discussed how a-la-carte pricing motivates improvements inproduct quality for consumers, but that such improvements are more likely for onboard products18