Leisure Industry: Competition and Price Variations - Essay Example

Leisure Industry- Competition and Price Variations Leisure Industry- Competition and Price Variations Leisure industry is a unique business segment that focuses on recreation, tourism, and entertainment related products, as well as services. Over the past century, this segment of business has significantly grown to a greater level, drawing a large number of entrepreneurs who involve in the business to invest and earn profit. As a result, businesses within the leisure industry have experienced stiff completions over the last few decades, as more and more leisure firms emerge, and end up targeting the same limited number of customers or consumers that had been there before. With such competitions, especially healthy ones, the businesses are forced to jointly manipulate their products’ and services’ prices in order to cope up with the market forces and customer demands (Peter, 1987, p. 57). The end results of such healthy competitions is lowering of commodity or service’s prices, which is a great advantage to the end consumers. This paper will thereby analyse the trends within the entire leisure industry, but narrow down to give a close attention to the airline travel business (Wilkerson, 2003, p. 46), and the market competitions that result to the lowering of prices. With regards to recreation as a business segment within leisure industry, humans tend to spend much of their time in activities of daily work, living, social duties, sleep, and leisure as a whole (Thomas,1970, p. 16). The later outcome being free from aforementioned commitments of social or physiologic needs, which are recreational prerequisites. According to Klaus & Christine (2004, p. 92), leisure increases with increase in longevity, as many people spend more hours on physical and economic survival. Other aspects accounting for the increasing role of recreation within the society include population trends, affluence, as well as the increasing commercialization of leisure activities and offerings (Thomas,1970, p. 19). While several people’s perception is that leisure is simply a spare time or unconsumed time left by the living necessities (McLean& Rogers, 2005, p. 201), most scholars hold that leisure is a strong force that pushes individuals to reconsider and reflect on the realities and values missed in daily life activities. Thus, recreation or leisure remains the most essential element of individual’s development, as well as civilization (Thomas,1970, p. 21). Another segment of leisure is entertainment, which is a form of activity performed to hold the attention and interest of a target audience, or in simple terms, to give delight and pleasure (Sayre& King, 2010, p. 142). Entertainment may be an idea or task, and is much likely to be amongst the events and activities that have developed over centuries, specifically with the central purpose of attracting the audience’s attention. Even though individuals’ attentions can be held by different number of things since they are hold different entertainment preferences, most forms of entertainment are familiar and recognizable.Sayre and King (2010, p. 148) reveal that the process is thereby hastened in the modern era by the entertainment industry, which involves in the recording and selling of entertainment products, as well as services. Entertainment can adapt and suit any scale, and involves a range of individuals who select from the private entertainment of the enormous assortment of pre-recorded products, to any size or scale of performances intended to thousands of people, or global audience (Vogel, 2007, p. 32). The third and the most well-known segment of leisure that tops in productivity within the industry is the tourism segment. Tourism encompasses travelling for leisure, recreation, family, business, or religious purposes, commonly over limited or short duration (Klaus & Christine,2004, p. 87). This segment is commonly linked to international travels, but may as well involve travelling to another place or locality outside one’s usual environment within the same country. Tourism is a popular global leisure activity that can either be domestic or international in its operations (Theobald, 1998, p. 192). The international tourism encompasses both outgoing and incoming implications in a nation’s balance of payment (Klaus & Christine,2004, p. 98). Currently, tourism is one of the major sources of income for a number of countries, and is able to affect the economy of both the host and source countries, hence being a vital player in the global economy (Beaver, 2002, p. 214). International travel being a sub-aspect of leisure within the tourism segment, thereby closely draws our attention to the airline travel as a component of the industry’s business (Wilkerson, 2003, p. 67). Competition amongst businesses is an advantage to the consumers since it tends to drive down prices; however, within the industry of airline travel, various airlines drive down their prices much lower than their competitors (Beaver, 2002, p. 216). The end result is the affordable or low prices (airfare) enjoyed by the travellers or consumers. For instance, analysis of about 95 local airline market entries between 2013 and 2014 revealed that, on average, the JetBlue airline drives down their prices by more than 50%, is significantly above every other airline. Frontier and Spirit Airline followed in second and third positions, and the lowest performers according to the statistics- US Airways and Hawaiian Airlines minimally increased their prices or airfares with negligible amounts. This proved the significant impacts of competition on airfare, which greatly determines the customers’ behaviour and attitude (Brander& James, 1990, p. 168). Once prices drop down within the markets, the changes tend to be long term, hence a long term advantage to the consumers. For over the last one or two decades, airline transport industry has been undergoing a global transformation (Theobald, 1998, p. 198). For instance, the aviation liberalization first began the U.S. by 1978, followed by the EU in 1990s, and has finally been adopted in several developing countries. Currently, the flag-carrying airlines which were previously enjoying the rights of monopoly in both developed and developing countries are now facing stiffcompetition from the start-up airlines that offer a range of simple products and services(Fox, 2013). Within the liberalized domestic markets, these so called LCCs (Low Cost Carriers) have been influential in radically transforming air travel. Both large and small scale airlines compete on both service quality and costs. According to Wilkerson, 2003, p. 54), air travel markets recently underwent fundamental changes, leading to the introduction of the low-cost airline business model. The LCCs model has been adopted widely by several airline markets- so much that this relatively unique business model posed lots of challenges to the more established carriers of ‘legacy.’ Additionally, the advancements in the internet lead to the banishment of the cheap traditional fare prerequisites of ‘Saturday night’ stay-over. Instead, several airlines teamed up to pioneer the new flight-booking approach via the internet, on the basis of one-way fare system. These approaches have not only allowed the ‘legacy’ airlines to moderate their costs, but have also allowed for easier comparison of prices by the travellers, thereby allowing for quick identification of the cheapest or most affordable flights available. Of late, there are two major innovations that impacted the passenger airline travel industry. First of the two innovations is the emergent and use of LCCs (low-cost carriers) that offers cheap, one-way fares, and no-frills. The second air industry innovation is the extensive adoption of the direct Internet-based business-to-consumer systems of ticket sales. The results of these innovations are so diverse and numerous, some of which include: (i) the extensive price discrimination on the basis of purchase date of the ticket, alongside other factors, (ii) the number and size distribution of the airline-supply routes nonetheless still significantly determine the average prices paid, (iii) the emergent ‘legacy’ carriers are still able to substantially alter the price premiums over LCCs, and (iv) the systems of internet fares have made easier the coordination of legacy carriers, which have substantially increased their fares over the previous two weeks prior to the flight date. All the above are competitive innovations whose outcomes in the airline industry hold significant influences on the airfare prices, especially by lowering them, and the ultimate beneficiaries being the consumers or customers who enjoy the low airfare prices (Morrison& Winston, 1995, p. 111). For instance, competition in the transparency in Internet fare or booking systems would definitely result in lowest fare offerings that are sustainable within the market. As well, the efficiency and simplicity of the LCCs would signify the possibility that only their fares would be the lowest in market. This may reduce gains by the LCCs or result to lose in their overall performance income, but a great benefit to the consumers (travellers) who always desire to spend less for the best products and services offered. Since the deregulations of airline travels in the U.S., UK, and other renounced world air operators by mid and late 1990s, different nations have been relying on competitions amongst airlines in order to promote innovations, affordability, and service quality enhancements (Kahn, 1988, p. 319). But how has this been working out? Well, for instance, there have been numerous innovations since the deregulation of the U.S. airline industry in 1978, including the proliferation of spoke-and-hub operations which channelled most traffics via a few but wildly overcrowded airports, the rise of point-to-point, no frills competitors, most commonly in the Southwest (Morrison& Winston, 1995, p. 113), which precisely succeeded through avoiding such airports, as well as the advent of blue-potato chips and seat-back TVs on JetBlue. Yonder to the jokey Southwest flight attendants and the seat-back TVs, though, there have been various quality or service improvements in a way that travellers can actually notice (Beaver, 2002, p. 211). A number of airline reports over years after the airline deregulation thereby proclaim that consumers have be experiencing huge costs of benefits, and a great democratization of air travels has been in place. According to Kahn (1988, p. 316), airline deregulation was thereby a lawful act by different governments intended to repeal government controls over airfares, market entries by new airlines, and air routes from the commercial aviation. Airline deregulations thereby opened up a new market of competition and price regulations (Bailey, 1992, p. 67). Owing to the current competitive nature of airline within the air travel industry, there is a considerable dispersion in airline prices (Fox, 2013). For instance, the expected difference in airfare prices paid by two passengers chosen at random on a given route is approximately 35% of the airline’s average ticket price along the same route. Competitive routes thereby exhibit more price dispersions, while increase in market density and high tourist traffic concentrations tend to reduce price dispersion, hence consistent with the models of monopolistically competitive price discrimination (Bailey, 1992, p. 70). As well, variations in airport congestions commonly relate to increased dispersion, as expected from the peak-load pricing. The observed price dispersion in airline prices may both result from discriminatory pricing and the costs of serving broadly-based and diverse groups of passengers during airline competitions (Mark, 2012). Under perfect competition, an airline firm’s airfare prices to certain groups of customers may be dependent the group’s industry elasticity of demand (such as the general product demand elasticity, including air travel on a specified route) (Beaver, 2002, p. 208), and the group’s cross-elasticity of demand on particular brands, such airlines and flight times. Opening a nation’s skies to international flights would thereby inject capital and competition into the country’s aviation market, resulting to much lower airfares and more enhanced services, usually on local routes to international or overseas destinations. According to Kahn (1988, p. 321), deregulation means the ‘creation of a room’ for market competition. Such healthy competition have certainly provided several financial benefits to the average air passengers as prices steadily decline and more customers flow in. As a result, many consumers are able to afford both local and international flights due to the lowered airfare prices. References Bailey, E. E. (1992). Airline deregulation confronting the paradoxes. The Cato Review of Business and Government, 15(3), pp. 66-71. Beaver, A. (2002). Fundamentals of tourism and travel: A dictionary of travel and tourismterminology. Wallingford: CAB International. Brander, A. & James, Z. (1990). Market conduct in the airlineindustry: An empirical investigation on competition and consumer commission. RAND Journal of Economics, 20(4), 167-183. Fox, J. (2013). Which is worse: Airline competitions or airline monopolies? Retrieved on 8thDecember, 2014 from https://hbr.org/2013/08/which-is-worse-airline-monopol/ Kahn, A. E. (1988).Surprises of airline deregulation.American Economic Review,78(2), pp. 316–322. Klaus, W. & Christine, M. (2004). The tourism and leisure industry: Shaping the future. London, Haworth Press. Mark, M. (2012). More airline industry competition could help reduce high air fares for Canadian travelers. Retrieved on 8th December, 2014 from http://www.biv.com/article/2012/10/more-airline-industry-competition-would-help-reduc/ McLean, D. D. & Rogers, H. J. (2005). Kraus recreation and leisure in modern society. New York, NY: Martin’s Press. Morrison, S. & Winston, C. (1995). The evolution of the airline industry. Oxford: Brookings Institution Press. Peter, B. (1987). Air travel demand and airline sea inventory management: Flight transportationlaboratory report. Cambridge: Massachusetts Inc. Sayre, S. & King, C. (2010). Entertainment and society: Influences, impacts, and innovations.New York, NY: Routledge. Theobald, W. F. (1998). Global tourism. Oxford: Butterworth–Heinemann. Thomas, S. (1970). Fundamentals of recreation, 2nd edition. Harpers & Row: Library of Congress. Vogel, H. L. (2007). Entertainment industry economics: A guide for financial analysis.Cambridge: Cambridge University Press. Wilkerson, C. (2003). Travel and tourism: An overlooked industry in the U.S. and Tenth District. Journal of Economic Review, 88(3), pp. 45-72. Read More