Dynamic pricing — A future airline business model

This paper examines the economic effects of a dynamic pricing strategy for the airline industry. It is shown that a seat on a specific flight is a typical perishable good, appropriate to be dynamically priced. The application of a dynamic pricing strategy has a neutral or a positive effect on revenues, depending on competitors' revenue management strategy. Furthermore, a dynamic pricing strategy not only influences revenue but also affects the cost structure of an airline and, hence, leads directly to a decrease in process complexity and transaction cost. Therefore, dynamic pricing proves to be the starting point for an efficient pull strategy. It follows that a dynamic pricing strategy can probably lead to a new business model for the airline industry.