IT-Supported a la Carte Pricing in Air Travel: A Test of the Strategic Decommoditization Hypothesis

• Main Authors: GRANADOS, N. F., Kauffman, Robert J., Lai, H. C., Lin, H. C.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Air travel industry; À la carte pricing; Channel conflict; Data analytics; Decommoditization; Intermediaries; Mechanism design; Computer Sciences; Numerical Analysis and Scientific Computing; Operations and Supply Chain Management
• Online Access: https://ink.library.smu.edu.sg/sis_research/1745; http://dx.doi.org/10.1016/j.dss.2012.01.009
• Institution: Singapore Management University

Global distribution systems (GDSs) and online travel agencies (OTAs) have been providing critical intermediation services for the air travel services industry. Their systems services have eroded the airlines' revenue by encouraging consumers to do price comparison-based purchases though, which has caused the commoditization of air travel services. The airlines have begun to adopt à la carte pricing mechanisms in their direct distribution channel, especially through their Web sites. This way, they can provide travelers with an array of information for different airline product bundles and the flexibility to customize different bundles. This mechanism design may allow airlines to decommoditize their services in the minds of consumers. We analyze two years of data from a large international airline that sold airline tickets via several different direct and indirect distribution channels. Our results suggest that demand in the à la carte channel as a whole is less price-elastic. The results for price elasticity for different market segments and bundle types across channels were not altogether consistent with our predictions though. We find that, for some branded bundles of services, price elasticity is lower in the à la carte channel, and for others it is higher. We discuss the implications for managers and the design of à la carte selling mechanisms.