Sign In
Create Account
One of the stupidest decisions is a price war, especially if you are much smaller airline.
What I do not understand why competitors undercut each other all the way to the brink of collapse. I have seen a good profitable route shrink to almost zero from hundreds of thousands of $$$ of profit. If both players maintain status quo and share capacity (I have determined that even with over capacity of up to 100% route can still be very profitable especially with connecting traffic).
But there si somehow always present the "ME factor", meaning "me" has to have more profit than the competitor, even for just couple of hours until he matches/undercuts my price. If I undercut, the logical response is "you mean war" and undercutting keeps on going.
Why do some players/people need to ahve 100% load factor on trunk routes and bring the route to collapse because they cannot stand to share the profits? In the end, both lose, because the route is no longer profitable and neither makes money. Had both stayed put, the profits for each other would be individually smaller, but together they would make good chunk of money and the route would stay juicy profitable.
I know this is the game, bit it's stupid behavior. I have business education and one of the basic things I understand is that price wars do not help anybody. Unfortunately in AE there is no other factor as to attract customers from competitor even by having higher price (good ife, marketing, etc.). But still even in this game the logical behavior is to share. It's better 50% of 1000 than 100% of 100 after teh route's profits go to almost zero.
I have seen many competitors who behave logically. They put reasonable additional capacity and match the price. If the original airline stays put it has less money but still very good profits. But there are some competitors who drop the price (undercut) once a competitor appears on their route, in a futile attempt to regain original traffic. Yet some other competitors,w hen they come to an existing route, double or triple the capacity and undercut the going price. Yes they get some more money for a while, but once the original airline finds out, it either matches the price (if behaving logically) or undercuts (if behaving emotionally) and the price war ensues.
So again the question: why do so many people / players behave illogically, and prefer short term profit with long term route degradation over the long term route stability?
Back to top
It says anything you need to know. I didn't just put it up there either.
).
