Each of the operating companies in the industry has pricing power and can set the prices according to its wish. Each company has the potential to affect the market but is also affected by other companies (Del Oro social Science Dept. There are some barriers to entry into the industry mainly because of the high set up costs involved. Vertical integration is limited in the airline industry as the choice of the entrant faces legal restrictions. Foreign ownership of most domestic airlines is limited mainly because of the regulation of the government.
Cabotage restrictions prevent the airline in a certain country to carry passengers further the entry point of another country (Sullivan and Coughlan, p.The company can make intensive use of revenue management. Some of its steps might be using seats that are convertible so that the flights are filled with passengers who are profitable. Signing up alliances between carriers can be the alternate way to sustain in the market. Investments can be attracted to upgrade the efficiency of the fuel (Whitelegg, 2000, p. Investments in new or modern aircrafts that are fuel efficient will lead to lower consumption of fuel.
The revenue streams can be diverted into many other sectors including the shift towards air cargo services. The loss-making routes should be identified and closed. The frequency of flights can also be reduced in certain identified routes which will have its effects on the average fixed costs. The employment contracts can be made more flexible. The costs of labor can be split up between fixed and variable costs. A policy of mixed pricing strategy that will improve the flow of cash and also act to shoot up the total revenue can be undertaken.
In the short run, the profit maximization policies can provide space for the pricing strategies. This will act as the shield in the situation of recession and focus will be on the survival of the firm (Riley, 2008).
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