The Priceless Job of Pricing

When I teach an Introductory Marketing Course, I emphasize the difficulty in establishing Pricing, one of the 4 Ps. Pricing is one key factor that can make a difference between making and losing money. Gross margin is what allows a firm to pay for the engineers and the marketers, after the senior managers grab the money bags first and take their loot.
The airlines are facing challenging times- capacity can only be added or removed in chunks, fixed costs are high, and fuel costs are variable. If the one-way cost of traveling from Chicago to NY by car, at $0.55 per mile (as allowed by the IRS) is $550, a one-way flight between the cities should cost at least that much. This does not even include the value of the time saved by flying.
The question is- what will be the demand if the airline prices a round-trip between ORD and EWR at $1000 for coach travel? What should be the price/ capacity point that will make the airline industry money?

The airlines, however, are going at the problem in a way that's sure to antagonize customers- pricing their product based on supply of seats or competition, and then harassing the customers with a slew of charges and fees. Charges for second bags, checking in at the airport, for aisle seats, etc. are the new normal. Now, airline execs are talking about charging for the use of lavatory- the term for these charges is "ancillary revenue"- yield management is old news. Quite soon, one will have to pay extra for water, sugar and cream for coffee which is also an extra-charge item. Want to stretch your legs near the galley? That's extra.

Airlines' bagggage related fees..

Airline travel should not be the great hassle that it has become. Airlines should be flying smaller fuel efficient jets, the aircraft makers should be charging less, and the airline execs should be taking a lot less money- significantly lower operating expenses should make for better pricing and capacity utilization. Lot of perks associated with flying have to go- these are not available in other businesses. Pilots have to start making a lot less. Making customers miserable is never a good idea for any business.