Why are some flight ticket deals localized?

12/28/2022 3:40:17 PM

The fundamental theory behind this is Price Discrimination through Market Segmentation in Marketing.

Note that all three of those are technical jargon terms with a precisely-defined meaning and may not mean what you think they mean:

  • Marketing is commonly thought of as a synonym of Advertising, but that is only one part of it. More generally, marketing refers to every decision about which good to market to which consumers in which market at which price, and how.
  • Market segmentation is about dividing a single market into separate markets based on some sort of criteria, e.g. geographic.
  • Price discrimination is the term that is most confusing to people not well-versed in economic theory. The word "discrimination" is used here in its generic meaning of "doing something different", it has nothing to do with illegal discrimination, civil rights, etc. Price discrimination means selling the same product to different consumers at different prices.

In micro-economics, there is a concept called the Reservation Price. The reservation price (on the demand side) is the highest price that a consumer is willing to pay for a particular good.

For the seller, the most profitable allocation is if they manage to sell to each individual consumer at a different price which matches that particular consumer’s reservation price.

This is called Perfect Price Discrimination and is the Holy Grail of marketing. Perfect price discrimination requires Perfect Information, though, i.e. the seller has to know the reservation price of every consumer, which is not realistic.

So, sellers typically settle for price discrimination using market segmentation, for example by segmentation markets by geographic region, by disposable income (often using discount programs such as student / senior / family discounts, bonus / reward programs, coupon programs, etc as proxies and to encourage consumers to "self-select"), or other criteria or by Product Differentiation (by offering the same good under different names, different brands, at different venues, using different channels, etc.)

There are also Product Variants and Product Lines, which are not technically price discrimination (since that term refers specifically to charging different prices for the same good), but closely related. The goal of product variants and product lines is again to get the consumers to "self-select" into the various groups without the seller needing to know the consumers’ price sensitivities and preferences.

Let’s give a concrete example: travelers from Wakanda have, in general, and on average, more disposable income than travelers from Corto Maltese. Therefore, travelers from Wakanda are both able and willing to pay higher prices for the same flight than travelers from Corto Maltese. However, for flights between Corto Maltese and Wakanda, an airline might not be able to fill the airplane entirely with travelers from Wakanda. But they still would like to charge the travelers from Wakanda higher prices than the travelers from Corto Maltese.

Solution: offer different tickets in Wakanda and Cort Maltese.

This would be an example of price discrimination through geographical market segmentation.

Another, completely unrelated reason for distinguishing between Wakandan and Cortinian travelers might be that the airline receives subsidies from the Cortinian government to make it possible for Cortininian travelers to travel more. In that case, the airline might even be legally obligated to only sell these subsidized tickets in Corto Maltese, or possibly only to Cortinian citizens.

12/30/2022 8:47:34 AM

Because they can? Some airlines may act on assumption that international travellers (from neither source nor destination country) are less tight on their spendings. They also lack awareness of what’s a good deal for the money on a given route.

E.g., French discount train operator Ouigo is not an airline but it flat out refused to sell you tickets (in 2019) if you didn’t have local cell phone – since they’re a branch of SNCF, a non-discounter train operator.

Some countries may be more prone to it, some less – it’s a widespread practice in Latin America, for example.

Credit:stackoverflow.com‘

About me

Hello,My name is Aparna Patel,I’m a Travel Blogger and Photographer who travel the world full-time with my hubby.I like to share my travel experience.

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