Case Analysis: “No Frills” Air Fares

Business Economics Case Analysis No Frills Air Fares attain between the demand curves for bailiwick Airlines, Eastern Airlines and the Airlines industry. The above analysis requires an catch of (i) Why is the demand curve downward sloping? (ii) Can cost throw the same effect on the demand between the firms and at industry level? (iii) What would be the effect of changes in income and other prices on the demand curve of a firm? iv) Calculate the price picnic of demand for study and Eastern Airlines. (v) Which elasticity measurement (Point vs. Arc) is appropriate for National and Eastern Airline? Explain No Frills Air Fares As the 1974-1975 deferral made inroads into passenger trading loads of the major airlines, National Airlines persuaded the civilian Aeronautics Board ( ward-heeler) to let it try an experiment with a snub of as much as 35 % from normal coach acts on certain of its regularly scheduled routes.National, in an effort to build up its load factor, tied its dis count bed proposal to the offering of no frills ser evil during the flight, including doing away with complimentary meals, snacks, soft drinks, and coffee so as to reduce costs and partially offset the lower-priced issue forths. However, passengers using the no frills visualize could selectively purchase these items in-flight if they wished. The no frills fares were offered only Mondays by Thursdays. The CAB gave the endeavour to National to experiment with the no frills fare, with the proviso that National study the protrude and report back at a later date.Eastern Airlines and Delta Airlines, some(prenominal) competitors of National on some of the routes where National proposed to implement no frills fares, were also permitted to use the discount fares for a trial period. In its report to the CAB on the results of the no frills access code, National maintained that 56 % of the 133,000 passengers who used its no frills fare from mid- April through June 30, 1975, were entice d to travel by air because of the discount fare plan. According to National, the new passenger traffic generated by discount fares increase its taxs by $4 million during that period.National verbalize that its figures were based upon an on-board look into of 13,500 passengers and presented one of the most gross(a) studies ever conducted for a CAB investigation. J. Dan Brock, vice president for marketing for National Airlines, was quoted at a news crowd as saying that the fare had been an unqualified success, had created a new air-travel market, and had generated more(prenominal) than twice the volume of new passengers required to offset revenue dilution caused by regular passengers switching to the lower fare.He said the stimulus of the fare gave National a net traffic gain of 74,000 passengers during the initial 21/2 month trail. But he also cautioned that the success claims he was making for the no frills fare did not mean that low fares were the termination to the airline industrys excess capacity problems. Yet Brock did go so far as to state that what no frills has proved is that a properly conceived discount fare, offered at the mature sentence in the right markets with the right controls, can help airlines hurdle traditionally soft traffic period. Eastern Airlines reported a much different experience. Eastern said its studies showed that only 14 % of the 55,200 of its passengers who used a no frills fare between mid-April and May 31 represented newly generated traffic, with the remaining 86 % representing passengers turn from higher fares who would have flown anyway. It said that the effect of the fare in the six-spot major markets it studied was a net loss in revenue to Eastern of $ 543,000 during the initial 11/2 months.At the same time Eastern attacked the credibility of the National Airlines survey, noting that its own data were based upon an exhaustive and scientific blind telephone survey among persons who did not know the dissolve and sponsor of the survey. Eastern claimed that this type of study was more apt to evolve unbiased results that Nationals on-board surveys.former(a) airlines joined Eastern in challenging Nationals survey results in the CABs hearing to decide whether the no frills fares should continue to be allowed. Delta Airlines, for example, claimed that the no frills fare did not even come close to offsetting the dilution its experienced in revenues. Other airline officials observed that while National Airlines might have succeeded through its heavy promotion of the no frills fares in diverting some avocation from ther carriers, they felt that Nationals claims of generating many passengers who otherwise would not have flown were preposterous. Those airlines in direct competition with National on the routes where the discount fares were well-tried were vehemently opposed to continuing the discounts. In their view the no frills approach constituted economic nonsense. They announced a policy of matching Nationals discount fare only where forced to for competitive reasons.