Price reform a response to market change
A slower than expected pick-up in the world economy has had the impact of increasing customers' price consciousness. This trend has accelerated the entry into the market of budget airlines. The traditional airlines' reaction to the new challengers has been reflected in their pricing structures and in intensified competition.
In response to customers' needs, Finnair implemented a major reform of domestic and European tickets in autumn 2003. The old rules-based pricing was discontinued in favour of flight-specific pricing according to supply and demand. Customers can buy outbound and inbound flights in different travel classes. Now flexible routings are also possible. The new pricing has had a positive impact on Finnair's price image and on demand.
The significance of business class as a basis for pricing declined as a result of the new pricing system. Most of Finnair's Eastern Europe flights were switched to a one-class service. The routes in question are those on which business-class demand was low.
At the same time Finnair discontinued the payment of travel agency sales commission, enabling flight ticket pricing to become more transparent. Finnair introduced service fees, which had already been used in travel agencies for a number of years. In the other main market areas, travel agency sales commission has been reduced or abandoned completely.
The new flight pricing and service fee model means that customers can exercise their influence more easily on the price of their journey and on the service they receive. For the airlines, the change will bring significant cost savings. Moreover, travel agencies' income is now based on work done, not on percentage sales commission on falling ticket prices. |