Question

Why is cost based pricing not an efficient way for airlines to set ticket prices?

Answer 1

In cost-plus the price are set at the cost of production plus a profit; and on contrary in value-based pricing the price is based on what customers are willing to pay. Cost based pricing decides the selling price of a product based on the cost for producing, distributing and selling the product. Airlines usually change ticket prices depending on the day of the week, time of day, and number of days before the flight. The dynamic air-ticket pricing factors-in different components such as number of seats a flight has, average cancellations on similar flights, and departure time. Thus they prefer value-based pricing, pricing strategy that sets prices primarily, however not exclusively, on the value, estimated or perceived, to the customer rather than on the cost of the product or historical prices