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· Posted on
May 18, 2021

There's a price war in the sky and you'll benefit

Rex has dropped their prices to a low $39 for some flights which has sparked a price war between airlines.

What's the key learning?

  • The loss leader strategy is when companies lower their prices below production costs to attract customers (and hope they will purchase other products to make up for the loss)
  • When companies all use the same strategy, they all end up losing and the consumer ends up winning

HOW CAN THERE BE A PRICE WAR IN THE SKY?

I know what you are thinking but no, this isn't World War 3, it's just a domestic battle between Airlines.

Qantas, Virgin and Rex Airlines are fighting an intense price war as all three airlines try to attract Aussies back to their air again.

Rex went bang and announced flights between Sydney and Melbourne for $39. And then right on cue: Virgin Australia copied the deal of "record low airfares".

Just when you thought this was too much to handle - Qantas got involved via their budget brand Jetstar. They dropped flights to $30 until the end of August.

So, what's the key learning?

The companies in the Airline Industry are all attempting the 'loss leader strategy'. This is when a company prices a product lower than its production cost in order to attract customers... then the company tries to upsell other (more expensive) products.

This is incredible news for the consumer. When all market participants (ie. airlines) use the same strategy, they all lose. And the only winners are us, travellers!

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