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Requirement
You work as an analyst for the marketing division of United Airlines. One day, your line manager (who is new to the company and has little experience in the airline industry) comes to you with the following message: “Some guys in the legal department are contemplating legal action against the website www.skiplagged.com for facilitating hidden-city ticketing. They need the support of the marketing team to convince the CEO to proceed with the lawsuit. The problem is that I do not even know what “hidden-city ticketing†is! Please write me short briefing note (approx. 750 words) covering the following points: a) explain what “hidden-city ticketing†is, b) the economic reason for the existence of these types of tickets, and c) why is hidden city ticketing damaging to us? Discuss Pricing with market power – price discrimination.
Solution
When the passenger disembarks the flight indirectly at the node of the connection, then it gives rise to the hidden city ticketing. Fares of the flight are related to the forces of the market and doesn’t correlate to the distance every time. For example, the flight between the point A and C, the node of the connection is B, may be cheaper than the flights between A and B. Then it is required to purchase a ticket from A to C which disembarks the node of the connection i.e. B and the remaining segment is further discarded i.e. B to C.
The airline companies don't allow hidden city ticketing to the customers because the airlines don't price depending on the cost whereas, they price depending on the demand. And the customers pay for the convenience of a nonstop flight through a connection node. The companies don't allow the hidden city ticketing because some of the passengers take advantage of it and it upsets the overall balance in the aviation industry (Wang, Z., & Ye, Y. 2015). Therefore, the passengers with high dollars become the passengers with low dollars and the generated revenue of that airplane drops. Earlier, very few people were doing this, and this wasn't upsetting the balance of the aviation industry but nowadays, websites are making it easy for the customers to provide the option of hidden city ticketing and this is adversely impacting the aviation industry. Further, it has become a real problem for the aviation industry . Therefore, it is not an issue for the carriers of the low cost, but it has become an issue for the carriers which offers incredible schedules in the various markets.
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The economic reason for the existence of these types of tickets is that the pricing of the airfare is very complicated and frequently an airline gets the choice of running various segments by occurring loss as the airlines offer discounting seats or even the company occurs much bigger loss even when to fly with the vacant seats with higher fares. The companies want to get the planes on the same track like before and even in a profitable and sustainable competitive position on the routing map. Therefore, they provide heavy discounts only when they required to, and further they balance it with the generated profits on the various routes that other airlines are not bothering to work at all ("BBC - Homepage," 2016). So, the aviation industry provides the hidden city ticketing depending on the condition or situation of the company. If the company is in a sustainable position, they don't provide and not even allow hidden city ticketing, but if the company is not able to generate desired profits and they have to fly with empty seats, then they offer hidden city ticketing even at the discounted rates to the passengers.
The hidden city ticketing is impacting the passengers and the aviation industry as well. But the passengers are the ones who get impacted adversely. The airlines use the hidden city ticketing because they cannot sell the second portion of the flight at the distinct or separate ticket. The companies only do this in order to generate profits. But we as the passengers doesn’t realize that longer flights with the lower prices have suddenly become cheaper because the companies are trying their best in order to compete with the carrier of the lower fare. And if there systems get hacked then they suddenly stop providing hidden city ticketing. The hidden city ticketing makes the flight delay because the gate agents make sure that everyone has boarded the plane and they also cross check that the luggage is also loaded on the planes according to the routes. But, in case any person is not able to board the plane then the gate agents tries to find him. And this delays the future travel plans of the passengers because the flight gets delayed. Re-routed is the biggest problem as it is not foolproof. A change in the location of the stopover will enforce the passenger to buy a ticket for one-way in order to reach the desired destination and sometimes, the passengers get room to wait for the night. The passengers should think about the extra $300 before considering the hidden city ticketing (Grannan et al., 2016).
According to the researches ("U.S. Government Accountability Office (U.S. GAO)", 2016), the Americans are the ones who get the advantage of the hidden city ticketing when they fly domestically because there are various options for them to choose between the hubs and the airlines. Whereas, in Canada using hidden city ticketing is very risky as they have strict norms and policies and the airlines of the Canada rarely use the hidden city ticketing.
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Hidden-city ticketing: The cause and impact. Transportation Science, 50(1), 288-305.
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BBC - Homepage. (2016). Bbc.com. Retrieved 25 October 2016, from http://www.bbc.com/
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Grannan, K., Mallon, T., Toobin, J., Cassidy, J., Pilon, M., & Ali, M. et al. (2016). The New Yorker. The New Yorker. Retrieved 25 October 2016, from http://www.newyorker.com/
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U.S. Government Accountability Office (U.S. GAO). (2016). Gao.gov. Retrieved 25 October 2016, from http://www.gao.gov/
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