How elastic is passenger demand?

[arandall]

Quick question, let's say there is a carrier A that's completely monopolizing a route with high demand. If I wanted to compete with him on the route by drastically undercutting him, how quickly will passengers come to my airline (for the sake of argument, assume we are flying at the same times with similar aircraft and have a similar company image)? Thanks.

[Sigma]

In my experience it's extremely inelastic.  And it's a tiny fraction of the price elasticity that one would expect.  In my experience price elasticity is a distant driver of demand, coming well after aircraft size, flight frequency, CI, and now, time-of-day.  Playing around with pricing is useless because you don't build consumer loyalty at all, so if you take a loss getting the passengers, as soon as you raise prices to turn a profit, you'll lose every one of them again.

If we're assuming all else is equal sans price -- you'll never run him off unless they're a small company and can't afford a loss on any line at all.  I've dropped prices down 95% or more and never gotten more than about 80% of the market, even with superior aircraft and frequencies on top of that.

It's basically impossible to completely run someone off in this game.  Your best bet, and it's impossible now with lack of multi-leg flights, is to flood every route they've got with an Alliance of members so you're all spreading the losses around equally so its manageable.  With 10 people each taking 10% of the losses that you're inflicting on a competitor, you'll be able to drive them off.  Basically you can't bankrupt anyone anymore unless they're just utterly tiny compared to you or utterly mismanaged.

[Jona L.]

You could drive somebody smaller, by just opening a base at his airport (supposing they are small enough for that [So I am save in LHR ]) I have opened a base in LHR, and have now 2% more marketshare, than the biggest airline with home base there... actually I am Marketshare leader there

anyways what I mean is coming from his internal you should basically be able to break up his business, since you can do every of his routes...

[coopdogyo]

I have found demand to be very elastic if you have a smaller aircraft. If I put a BAE146-200 on a route competing with a 737-800 even with full HD seating I can have more than 50% of the market within 8 hours real time.

[Jona L.]

because passengers more likely use smaller planes... it is atm. about exactly the same aircraft, we are just discussing about pricings