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Question
3.   If a new airline began operating in your area and offered every day fares that were only 90 percent of the price of its nearest competitor. How likely would you fly on that airline regularly? What if they were 50 percent of the price? What if they were 10 percent of the price?

Answer
I  MAY  TRY  ONCE  TO   TEST /  EXPERIENCE   THE NEW  AIRLINE.
ANY  PRICE  REDUCTION   WILL  NOT  LAST  LONG,  AS  THE  PRICE  RISE  WILL   AFFECT  THE   OPERATING  COST.

The factors affecting the airlines pricing decisions identified in the answer posted above. However there are additional factors. In my answer I am giving a more comprehensive list. Also I have classified these factors in five groups - cost, demand, supply, competition, rates and taxes, and government regulation. Also, I have provided some additional insights into how these factors behave in some specialized way for the airlines industries.
Cost:
Costs in airlines can be classified according to the degree to which these depend on the turnover. The capital cost of the aircraft and related facilities are fixed costs. Overhead costs of establishment are also relatively fixed. For example, with the same fleet of aircraft, an airlines may change the number of destination to which it flies. This will change the establishment costs associated with the number and type of destinations served.
Fuel constitutes the biggest component of the variable costs.
Labour cost change only partially. Only some additional allowance paid to the flying staff is directly related to the level of operation. Other variable costs such as the refreshments served in the aircraft is relatively low. However, such in-flight facilities can be provided only by reducing the passenger carrying capacity of aircraft.
Another major component of variable cost is the charges paid to the airports for takeoff, landing, and other ground support facilities.
The selling cost are also significant, when the sales is done through selling agent. However the sales cost are much lower for the booking made made by the customers directly through the Internet. For this reason, airlines often offer lower fares for booking made through the Internet.
Variable cost in the airlines are proportional to the full aircraft carrying capacity, rather than the actual number of passengers carried. When a place flies between two destinations, most of the cost remains same irrespective of the number of passengers on the flight. For this reason many airlines offer heavily discounted fares for filling the seats on flights that remain unbooked even on the day of flight.
Demand
In airlines the demand is often classified according to the extent to which a passenger is able and willing to change the travel schedule and the elasticity of demand in relation to price. Thus airlines employ various means to charge higher fares to passengers with rigid travel plans and offer discounts to customers with flexible travel schedules.
Class of travel is also an important aspects of the demand. Thus pricing decision includes not only the fare, but also the division of total passenger carrying capacity of aircraft in different classes of travel.
Supply
In airlines the supply varies in blocks equivalent to full aircraft capacity. It is not possible to match supply with exact number of passengers. Also it is not possible to change the schedule of flights at short notice. Often the changes in schedules is planned weeks in advance.
Competition
Like all other industries the completion also plays an important consideration in pricing decision. This completion is closely linked to the availability of flight at a time convenient to passenger.
Rates and taxes
These are paid to government and other statutory agencies. These may be treated as a component of cost.
Government Regulations
Some times government puts restriction on the fares that can be charged.


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ALSO,  WHEN  THE  FARES  ARE  REDUCED,
-there  will  be  increase  in the  number  of  passengers.
THIS  COULD  TRIGGER  THE  OPERATION   EFFICIENCY   AND TIMING. THERE  WOULD  BE BREAKDOWN  /  DELAYS.
THE  LEVEL  OF  SECURITY / SAFETY  WILL  GO  DOWN.

TAKING  ALL  THESE  FACTORS  INTO  CONSIDERATION,   I   WILL  ONLY   TRY  ONCE  / TWICE.  

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Leo Lingham

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management consulting process, management consulting career, management development, human resource planning and development, strategic planning in human resources, marketing, careers in management, product management etc

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18 years working managerial experience covering business planning, strategic planning, corporate planning, management service, organization development, marketing, sales management etc

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24 years in management consulting which includes business planning, strategic planning, marketing , product management,
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PRINCIPAL -- BESTBUSICON Pty Ltd

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MASTERS IN SCIENCE

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