How does dynamic pricing affect airline customers?

Abstract

This study establishes that dynamic pricing impacts airline customers’ behaviour, perception and experience in a remarkable way. A popular practice which has become more common especially in the airline industry is dynamic pricing which sees tickets being sold at different prices depending on the time of booking, their popularity and other factors. However, this is a strategy that can be used to maximize the revenues of airlines but when it comes to customer’s trust, satisfaction and loyalty, there are some issues that may arise. Many prior researches have mainly examined the aspects of operational effectiveness and financial performance of dynamic pricing. Nevertheless, there is limited understanding of how customers behave in response to price volatility and how they perceive fairness and value of pricing schemes. This literature review examines the impact of dynamic pricing on customers’ decision making, fairness and satisfaction. 

These results show that customers feel psychological pressure while facing price changes and may lose trust in airlines if they feel that they are being manipulated. This research also shows that there is a possibility for price differences for the same flight which might raise customers’ suspicion and affect their view of the airline as being honest. Further, consumers’ reaction to dynamic pricing is different depending on the age, income, and the reason for travel, which points to the need for more segmental pricing strategies. Though dynamic pricing is beneficial in increasing revenues, the airline companies should not forget the importance of being honest and offering a fair deal especially in the eyes of the consumers. Therefore, it is vital for the airline companies to adopt a moderate approach to dynamic pricing by being more transparent and fair in order to foster good relations with the customers and hence achieve long-term success in their revenue management strategies.